Fiscal and Monetary: An Inseparable Pair

Public debt: an “existential threat.” That is how it is described by the guardians of budgetary orthodoxy, whose alarmism owes more to populism than to a rigorous understanding of the mechanisms at play. Their discourse aims to instill fear for ideological purposes. It serves a hidden agenda. Unless, perhaps, they simply ignore the intimate ties between taxation and monetary policy—which is just as serious.

Fiscal and monetary: intimately connected

Public debt is the other side of private savings. Every euro of government debt corresponds to a euro of assets for households and businesses. Presenting debt as a threat amounts to denying this interdependence, and to turning an accounting fact into an instrument of political terror.

In the world of institutional reality—within a sovereign monetary system—public spending comes before taxation, and public debt is an instrument of monetary sovereignty. The State does not wait to collect taxes—nor is it dependent on them—to spend. No: it spends first, thereby creating the income that will later be taxed.

Taxation therefore does not “finance” the State; it regulates demand, redistributes wealth, and gives value to the currency. Public spending injects money into the economy, while taxes withdraw it to avoid overheating. The real constraint is not financial but tangible: as long as there are unused resources—unemployment, underutilized production capacity, infrastructure to build—the State can and must spend to mobilize them.

Inflation is the only limit, not the budget balance. If and when it appears, it is fought by adjusting fiscal and monetary policies to contain price pressures, not by cutting useful expenditures. By issuing debt, the State is not tapping into some pre-existing pool of savings, but generating a safe asset that stabilizes the financial system. The central bank, for its part, always has the capacity to intervene in this market to guarantee its liquidity. The ECB demonstrated this by massively buying government securities after the 2008 crisis and during the pandemic. Far from leading to catastrophe or triggering a time bomb, these measures in fact preserved stability.

We must finally understand this fiscal-monetary nexus: there are not two separate spheres—budgetary on one side and monetary on the other—but a continuum, a circuit, in which public spending, private savings, and central bank action are interwoven. We must put an end to the simplistic analogy that ignores the fundamental nature of the State as a currency issuer.

The real populism: austerity as a horizon

The populists of fear, however, revel in a reductive vision of the economy that, in truth, forms the core of their electoral strategy. By frightening citizens with apocalyptic scenarios—runaway inflation, a repeat of the Greek crisis, IMF bailouts—they exploit irrational fears to impose sacrifices.

This populism of austerity serves an obvious political function: to transform a democratic question—what do we want to dedicate our collective resources to?—into a pseudo-accounting necessity. It depoliticizes the debate by reducing it to a single number—debt level—when the real issues are the distribution of wealth and the direction of public investment.

The intellectual fraud of treating a sovereign state’s budget as if it were a household’s is nothing but a strategy to shrink the State, leaving us a bitter society. Denying this truth condemns France to permanent austerity, chronic underinvestment, and the erosion of public services. It means refusing to see that we have the monetary means to ensure the ecological transition, strengthen hospitals, fund research and education.

Public spending injects money; taxation regulates it. Debt is an accounting entry, not a vice. An ambitious policy means debt is not a problem if it serves the common good: it is austerity that is the real threat.