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Discussions 91
urged the authors to explain why the corporate sector is accumulating so many
assets. Pursuing this idea, Richard Portes wanted the report to also examine how
debt is going to be liquidated in the future.
Katrin Assenmacher thought that the long-term path for interest rates matters
a lot, especially as central banks must eventually raise them. She added that there
should be a discussion of the currency denomination of debt. Expanding on this
line of thought, Benoît Coeuré emphasised the need to consider the role played
by cross-borders flows when assessing debt sustainability. For instance, Japan is
probably the country with the worst debt-to-GDP ratio but the debt is mostly
held locally. In contrast, in the Eurozone, capital movements raise concerns for
sustainability. Stefan Gerlach developed the view that the debt servicing cost is
not independent of the growth potential, which calls for a deeper discussion of
interest rates. He added that institutional factors play a crucial role too.
Looking at the banking system in Europe, Harald Hau observed that widespread
bailouts have redistributed wealth from the taxpayer to the most wealthy 1% of
households who own a large share of bank equity. Mourtaza Asad-Syed asked
whether a tax on credit could reduce future excess leverage, emphasising that it
is crucial to determine who has to bear the cost of credit.
Amlan Roy stressed the possibility of a self-fulfilling crisis. In this sense, the
international debate should not tone down the fact that debt is a big problem
and it keeps growing in some countries. He expressed the view that Belgium has
the most unsustainable debt of any country in the European Union and that the
potential GDP growth differential between France and Germany was a major
concern. Mathias Dewatripont responded that Belgium may face a particular
political risk but its debt sustainability situation has improved, as shown by
many indicators, and the country has never defaulted on its debt.
Yi Huang took up the case of China and other emerging countries. He
underlined the roles of capital inflows and of carry trade. He also observed that
China is working to improve the efficiency of its financial system through the
liberalisation of interest rates and of its capital markets.
Finally, Carlo Monticelli advised the authors to dig into the policies needed to
obtain the necessary quick deleveraging. It would be interesting to connect the
failed reduction in deleveraging to the policy responses to the crisis. The failure to
deleverage was a result of the huge monetary and fiscal expansions, which were
the right policy actions, but they reduced incentives to adjust rapidly, especially
in the financial sector.
Lucrezia Reichlin replied by first observing that the report indeed focuses on
both liabilities and assets. An extended balance sheet analysis for the Eurozone
and the US stresses the differences between the two regions. She also argued that
in Japan, corporate debt is relatively high compared to the US while the degree
of corporate leveraging is much lower. This element is crucial since it determines
the degree of vulnerability of a country when a banking crisis hits. She agreed
that distributional issues and the level of debt servicing are very important.
Luigi Buttiglione agreed with Carlo Monticelli that the policy responses to
the recent crisis increased the amount of leverage in the system. He also shared