Thomas Jordan: No end to the debt society without a culture of stability
Summary of a speech by Mr Thomas Jordan, Vice-Chairman of the Governing Board of the
Swiss National Bank, held at an "NZZ Podium" event, Zurich, 28 February 2012.
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The complete speech can be found in German on the Swiss National Bank's website.
The most recent financial and economic crisis has resulted in an unprecedented rise in public
debt. However, a chronic tendency towards deficits and higher indebtedness has already
been observed in a number of countries for the past few decades. Excessive public debt has
a negative impact on long-term economic growth, and deprives a country of its freedom of
action during a crisis. Sound state finances are thus essential for ensuring an economy's
competitiveness and maintaining its social security system, and hence also for social
solidarity. Last but not least, excessive public debt also poses a serious threat to price
stability and monetary policy independence.
Yet how can state budgets be consolidated over the long term? There are limitations on how
far fiscal policy powers can be delegated to independent groups of experts. Because
fundamental decisions on taxation or expenditure - unlike monetary policy - are aimed at
redistribution, they have to be taken at the political level. Even fiscal rules such as a deficit
cap or debt ceiling can only achieve a lasting improvement of budgetary discipline if they are
supported by a broad political consensus on the advantages of sound finances. Switzerland
is a good example of this: thanks to the inclusion of the major political players in government
responsibilities, and to the extension of direct democracy processes even to financial
matters, a deeply rooted culture of stability has developed. It is this which provides the
foundation for the stabilising effect of the well designed and constitutionally anchored debt
brake. This has made a decisive contribution to ensuring that federal government finances
are in good shape despite the financial and economic crisis.
As a general rule, any efforts to establish a sustainable fiscal policy in countries with debt
problems can ultimately only bear fruit if they succeed in fostering a broad-based culture of
stability.