by

Robert Cauneau

22 May 2025

« All men are mortal. Now, Socrates is a man. Therefore, Socrates is mortal. » This syllogism, inherited from Aristotelian logic, has survived the centuries as the perfect example of rigorous reasoning. We accept the premises, and from them we deduce the conclusion. No one would dream of disputing Socrates’ mortality, unless they would deny the entire argument.

And yet, in the field of monetary economics, this basic logic seems to dissolve when it comes to thinking about the budgetary role of the State. To the strictness of reasoning, we prefer the anxiety of deficits. To the facts, we prefer fears. Modern Monetary Theory (MMT), which merely draws the logical consequences of an observed and known monetary system, is dismissed as heresy. While the opposite is true: to ignore MMT is to deny the facts and logic.

The Monetary Syllogism

Let’s put the argument another way.

• No state that controls its currency, in a floating exchange rate regime, has ever defaulted on its own currency, except voluntarily.
• Japan, the United States, the United Kingdom, Canada, etc.¹, control their currencies under a floating exchange rate.
• Therefore, these states cannot default involuntarily.

This syllogism is just as rigorous as Socrates’. And yet, it is massively ignored, even contested. Of course, economic reality cannot be summed up in a three-part argument. But this syllogism, however elementary, is based on solid empirical facts, which have never been refuted. Its premises are not contestable. They are simply ignored. This is not about reducing reality, but about shedding light on what so many debates prefer to obscure: the fundamental logic that should guide all thinking about public finances, and more specifically about the deficit and public debt.

We constantly hear that « public debt is unsustainable, » that « markets can refuse to lend, » or that « the State is living beyond its means. » All these assertions contradict a simple historical fact: a State that creates its own currency, with a floating exchange rate, cannot be financially constrained. It can always honor its payments by creating the units of account over which it has exclusive control. It can only default by political choice, never due to technical impossibility.

What MMT Says, and What Everyone Sees (But Doesn’t Want to Admit)

MMT is not a revisited Keynesian utopia. It is not based on wishes, but on observable facts. It begins where every state begins to exist: with the ability to impose a tax in its own unit of account. It is this fiscal obligation that gives money its value: everyone must obtain it to pay their taxes. And this money, the state creates by spending, and destroys it by taxing.

Therefore, all public spending is monetary creation. And all tax collection is monetary destruction. Government securities, for their part, are merely an instrument for managing interest rates, not a resource to « finance » spending. What we call « public debt » is in reality the money spent by the state and not yet recovered through taxes.

To reject this is like refusing to allow Socrates to die. It is preferring myth to logical deduction. Yet, under a floating exchange rate regime, a fiat currency, public spending does not need to be financed. The state first spends, thus creating its own currency, then taxes or issues securities. It can therefore never « run out of money, » unless it prohibits itself from doing so.

The Special Case of the Eurozone: An Exception That Proves the Rule

But what about the Eurozone countries? They are developed states, with powerful institutions, central banks, and efficient tax systems. Yet, they appear vulnerable to financial markets, as if the MMT syllogism no longer applies to them.

Indeed, in the Eurozone², the MMT argument regarding the state as a currency monopoly³ can only be applied at the level of the zone as a whole, not at the level of the individual Member States. While the latter certainly create the euros themselves by spending, the absence of a European treasury prevents them from controlling both spending and taxation at the level of the zone as a whole. Moreover, the Member States operate within a framework containing financial limits, in reality self-imposed, namely the public deficit-to-GDP and debt-to-GDP ratios. These limits represent constraints on the fiscal policy of states, preventing them from running the deficit necessary to achieve full employment. However, they are not based on any theoretical foundation. They are essentially political.

Another important consequence of the fact that member states do not have currency monopolies, as well as the fact that their Treasury account with the ECB must always have a positive balance, is the need to raise tax revenues and issue government securities. This, due to the lack of ECB support, makes them dependent on financial markets, generating the expectation of a risk premium and therefore higher interest rates. Thus, unlike states with currency monopolies (the United States, Canada, the United Kingdom, Japan, etc.), if the ECB does not guarantee the government securities they issue, eurozone member states can default.

From then on, the implacable logic of MMT no longer applies, not because it is false, but because the member states themselves have destroyed the conditions for its validity. The risk of default becomes real, not because it is technically inevitable, but because these states have voluntarily deprived themselves of the ability to control the currency they use.

This absurdity came to light during the sovereign debt crisis between 2010 and 2012. The markets speculated on national debts, causing interest rates to skyrocket. And it was only when the ECB, through Mario Draghi, declared that it would do « whatever it takes »⁴ to save the euro that spreads⁵ deflated and rates stabilized. What the markets were really waiting for was simply the return of an implicit guarantee from the central bank.

This shows one thing: it’s not economic reality that creates vulnerability, it’s the political architecture. Default becomes possible, not through natural constraints, but through an absurd institutional arrangement, most likely inherited from an ideological distrust of states and a fetish for « market discipline. »

The Eurozone therefore does not contradict MMT. On the contrary, it offers proof of it by contradiction : when a state is stripped of control over its currency, it becomes vulnerable.

An Absurd World: When Fear Trumps Logic

In this upside-down world, we prohibit ourselves from investing in education, healthcare, or any other public service, under the pretext of deficits. We cut back on hospitals, but we « reassure the markets » by distributing interest-bearing government securities. We’re cutting funding to local authorities, but we’re guaranteeing interest rates for investors. All this while refusing to see that government securities only serve to fuel private income, while the state doesn’t need them to spend.

We’ve reached the height of absurdity: we’re allowing the ECB to massively buy up public debt on secondary markets, while prohibiting it from « financing » it directly. Money is indeed created, but in a roundabout, opaque way, with ideological conditions attached. As if the main goal was to prevent citizens from understanding that, in reality, we can always finance what’s useful.

Conclusion: Restoring Logic

Putting logic back at the heart of economic thinking is not an option; it’s a necessity. It means finally recognizing that the public deficit, far from being a flaw, is often the corollary of a state investing in the future and supporting its economy. It means admitting that « public debt » is nothing other than the financial wealth of the private sector. Understanding this frees us from unfounded anxiety and allows us to focus on the real challenges: ensuring full employment, financing the ecological transition, and strengthening our public services.

Just as the mortality of Socrates necessarily stems from clear premises, the ability of a state that creates its own currency to honor its commitments in that same currency is a logical truth. The same is true of the political, and in no way economic, nature of the debt sustainability of Eurozone member states. Ignoring it is not a sign of prudence, but a renunciation: that of giving ourselves the means to build a more just and sustainable future.

Just as Socrates is mortal, the conclusion is inevitable. To fail to recognize it is to refuse to think.

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Notes

1. The list of countries by exchange rate regime can be viewed here : https://en.wikipedia.org/wiki/List_of_countries_by_exchange_rate_regime
2. See this article : https://mmt-france.org/2020/09/21/mmt-et-leurozone/
3. The concept of a currency monopoly state corresponds to that of a state that, under a floating exchange rate regime, creates and controls its own currency. This concept is the very foundation of MMT.
4. This is Mario Dragui’s well-known « Whatever it takes ».
5. In the Eurozone, spreads refer to the difference in interest rates between member countries’ sovereign bonds and those of Germany, which is considered the safest issuer. These spreads reflect each country’s perception of credit and liquidity risk.