Inasmuch as institutional independence allows us to take a more long-term view, central bankers are well-placed to push for a more far-sighted approach. Take fiscal federalism and debt mutualisation, both historically contentious issues. Many, including Germany’s current chancellor have described the Next Generation EU decision as Europe’s Hamiltonian moment, an opportunity to combine EU fiscal capacity with common rules and conditionality.
In this line of reasoning, the capital donors have a certain idea about the return on the capital they have put in. If the capital share is increased, expenditures are greater than in a situation with higher borrowed capital. The crux of the matter is this: all other things are not equal. That is because the required return on capital contains a risk premium.