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PhD Defense Mr. Drs. A.G. van Riet

Title: Financial Repression and High Public Debt in Europe
Supervisor: Prof. S.C.W. Eijffinger, Prof. L.H. Hoogduin


The sharp rise in public debt-to-GDP ratios in the aftermath of the global financial crisis of 2008 posed serious challenges for fiscal policy in euro area countries. This thesis examines whether and to what extent modern financial repression has been applied in Europe to address these challenges. Financial repression is defined as the government’s strategy – supported by monetary and financial policies – to gain privileged access to capital markets at preferential credit conditions and divert resources to the state with the aim to secure and, if necessary, enforce public debt sustainability.

Following a narrative approach, this study finds that the euro area countries, in particular those hit hard by the crisis, actively used financial repression techniques to persuade domestic investors to maintain and increase their sovereign credit exposure while some governments used forcible methods to relieve liquidity stress and a debt overhang. Conditional EU/IMF official assistance and ECB monetary policy interventions had an important additional stabilizing influence. Furthermore, a new composite index of government funding privileges presents clear evidence that the authorities have introduced a preferential regulatory treatment of public sector securities relative to those of the private sector in a growing body of EU prudential legislation over the period 2008 to 2017.

This study also reviews the debate on secular stagnation versus financial repression as the drivers behind the secular decline in interest rates to historical lows in 2016 from which in particular high-debt governments have benefitted a lot. Concentrating on the euro area crisis and the aftermath of low inflation, it finds that the ECB’s uncommon monetary policy interventions to suppress long-term interest rates and ease private financing conditions were geared at restoring price stability in the euro area as a whole, but also distorted the free market allocation of resources which generated significant fiscal advantages and quasi-fiscal side-effects.

Location: Cobbenhagen building, Auditorium (access via Koopmans building)

Order the PhD thesis

When: 05 February 2018 14:00

Where: Route description Tilburg University campus