What this covers
William White, former chief economist at the Bank for International Settlements with decades of central banking and international economics experience, sits down with Paul Botink to trace how successive monetary interventions since the late 1980s have built an unsustainable global debt structure with no exit that avoids serious damage. The conversation moves through the mechanics of how each crisis spawns the next—central banks lower rates and print money to ease one squeeze, only to seed larger imbalances downstream—and examines why the most probable resolution is financial repression, a deliberate holding of interest rates below inflation to erode real debt values. A running tension threads through: the collapse of trust within and between nations, from Americans' skepticism of their own government to skepticism of the eurozone's survival, undermines the cooperation that prosperity requires.
The discussion dwells particularly on the eurozone's structural fragility and the emerging threat posed by France's fiscal position. White traces a design flaw embedded at the euro's creation—monetary union launched without prior political union—a contradiction that was understood but politically suppressed at the BIS in the 1990s. He explores why a French debt crisis poses graver systemic danger than earlier peripheral crises, since France sits at the core of Franco-German relations, and sketches the political dilemma that financial repression creates: inflating away French debt would require inflation levels or duration that Germany and the Netherlands may find intolerable. The conversation also covers the current credit bubble, distinguishing it from 2008 by its concentration in non-bank financial institutions where authorities have limited visibility, and addresses why a new Bretton Woods-style coordination is unlikely given that every major economy wants currency depreciation to ease its own debt burden—an impossible collective outcome.
William White argues that decades of central bank money-printing have created an unsustainable global debt overhang with no painless exit, and that the most likely resolution is 'financial repression'—holding interest rates below rising inflation—which poses a particular existential threat to the eurozone given France's fiscal divergence.
- Each crisis since the late 1980s has been met with the same remedy—print money/lower rates—which encourages more debt and seeds the next, larger crisis
- There are only bad alternatives to a debt overhang (fiscal restraint, repudiation, inflation, financial repression); financial repression is the least-bad and most likely path
- France is now at the core of a potential eurozone crisis, and the inflation needed to inflate away French debt may be politically intolerable in Germany and the Netherlands
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The euro project embodied a tension between two views: Otmar Issing's ex-ante position that political union must precede monetary union to make it work, versus Tommaso Padoa-Schioppa's ex-post view that crises would arise but each would be used to drive integration until everything converges into a stable euro.
“people like Otmar saying um we need to have these unions particularly political union beforehand... Tomaso uh was much more sort of the Italian his view was yeah there will be crisis along the way... But each crisis we'll use to to make progress”
Cooperation is based on trust, and the current collapse of trust—both internationally and within nations (e.g., only ~19% of Americans trust the federal government, ~15% trust Macron, ~4% trust the current Dutch coalition)—undermines the cooperation that is the basis for growth and prosperity, putting the world in a dark place.
“if you don't have trust, um you don't have cooperation. And if you don't have cooperation, uh which some people would say is the the the basis for growth and for prosperity, uh then you're obviously in a pretty dark place.”
There is a frightening reflexive scenario in which raising interest rates to fight inflation becomes inflationary rather than disinflationary, because higher rates so worsen government debt servicing that people expect the government to force the central bank to monetize the debt—as captured in Sargent and Wallace's 'unpleasant monetarist arithmetic' and Cochrane's fiscal theory of the price level: fiscal policy ultimately dominates monetary policy.
“the central bank says, 'I'm going to raise interest rates to fight inflation.' But instead of that being disinflationary, it's actually inflationary because people expect the government increasingly to go back into the central bank to get financing”
Stabilizing one complex system (economic/financial) can destabilize related interconnected systems (political, environmental, public health), any of which can take the others down—so linear, controllable models of the economy are fundamentally inadequate, as Hayek and the Austrians have argued.
“you can do stuff to stabilize your system, but if it winds up destabilizing some related system... they're all interconnected. And if any one of them goes under, they can quite easily take the other ones down with them.”
Debt repudiation/jubilee is not a viable solution today because, unlike the biblical king who forgave debts without affecting his own consumption, modern debt write-offs land on pension funds and insurance companies—'that's you and me'—making them politically unacceptable and administratively fraught.
“in biblical days, it was the king... he didn't change his consumption, right?... But when you start writing off debt, you know who's on the other side of it? It's the pension funds... And the insurance companies. and everybody's going to scream about that.”
The 'micro-macro' problem of regulation: for each individual regulation there is a good reason to oppose its removal (a lobby against everything), but if there is always a good reason to block everything, then nothing gets done and needed structural reform stalls.
“you can't get anything done because there's always a lobby against everything for for good reason... if there's always a good reason to be against everything, then nothing happens”
For any single pension fund it may be rational to short French bonds, but if everyone does it simultaneously they precipitate the very crisis they are trying to avoid, producing a worse outcome than inaction—this collective-action dynamic is the definition of boom and bust.
“for any single pension fund, they probably should be shorting bonds and shorting French bonds in particular. But if everybody does it, then you're actually precipitating the crisis that you're trying to avoid.”
When inflation is unexpected and interest rates are not allowed to rise with it—as during the pandemic—the real value of debt falls and debt-to-GDP drops; but governments cannot repeat this trick repeatedly because expectations ratchet up, eventually producing hyperinflation.
“during the pandemic, the inflation was unexpected and the interest rates didn't go up and so the upshot was you got a significant reduction in the debt to G&ratio... but by the time you get to the third time around, with inflation always coming in to higher than expectations... it's hyperinflation.”
In a complex system you can only start from where you are, not from a hypothetical clean slate, so the real near-term problem is not designing an ideal system but dealing with the existing overhang of debt.
“another element of complex systems, right? You can only start from where you are. You can't start from someplace else.”
Every financial crisis since the late 1980s has been met with the same response—print money / lower rates—but this merely encourages more debt that becomes the basis for the next, larger crisis, creating an intertemporal contradiction where actions good for today make things far worse five years out.
“every time the answer to the problem is exactly the same, which is print the money. But in printing the money, all you're doing basically is encouraging people to take out more debt, which then become becomes the the basis for the next crisis”
A debt overhang has only four resolution options, all bad: fiscal restraint (cutting consumption), debt repudiation/jubilee, letting inflation rip, or financial repression; the actual outcome will likely be a combination, with financial repression—holding interest rates below rising inflation via administrative means—as the least-bad and most probable core mechanism.
“there are no good alternatives, you know, um there are only bad alternatives. And the question is which one is the least which one is the least bad?”
The eurozone was a vulnerable construction from the start because monetary union was created without first establishing political union; this design flaw was understood at the BIS in the 1990s, but warnings about the 'potholes' were politically suppressed because acknowledging needed short-run sacrifices would have cost public support.
“he got into a lot of trouble by pointing out the potholes along the way to the Euro to the Euro project... it's better not to talk about these potholes at all because people will will realize that shortrun sacrifices have to be made for long run benefits and they won't they won't vote for that.”
Central banks are ultimately part of a democratic process and will do what elected governments require, as Arthur Burns argued in 1979 about accommodating inflation; this means the ECB will likely intervene unconditionally to support French bonds if given political permission.
“Arthur Burns gave a a lecture I think it was in 1979... his basic message was if democratically elected governments want you to do something uh then as a central bank in the end you have no choice but to do it.”
It is not always debtors who leave currency unions; creditors can choose to leave, and if Germany and the Netherlands left the euro their currency would be much stronger—but that appreciation would threaten the viability of their highly export-oriented industries, so there are no easy choices.
“it's not always the debtors that leave currency unions. I mean it's the creditors that can decide to go... whether these other countries leave the euro including France or Germany and the Netherlands uh leaves the euro your currency the German Dutch currency will be a lot stronger... which is going to bring into question the viability of many of the highly export orientated industries”
A new Bretton Woods is unlikely because every major country has a big debt overhang and therefore wants more inflation and currency depreciation; but all major currencies cannot depreciate against each other simultaneously, creating an unresolvable puzzle—e.g., China depreciating for competitive advantage versus the US dollar depreciating to address its structural deficit.
“Every major country has got a big debt overhang problem and every major country in that sense wants more inflation which implies in a certain sense more depreciation. So the cure is all the major currency should depreciate and then you sort of say wait a minute that's not that's not possible.”
In an era of scarcity where aggregate supply grows weakly and large investment is needed, the economist's prescription is selective demand cuts—materially reducing consumption for a period—but this is totally unpopular and politically unworkable (the Juncker problem: knowing what to do but not how to get reelected after).
“the only thing that's left is consumption. there's there's got to be a material reduction in in consumption for a period of time to get the investments that will put us on a better path”
A better future monetary system would be a more 'narrow money' system with far fewer safety nets, where people must judge their own risks and go under if they make a mistake—though designing it is hard because technology is changing so fast.
“I certainly would be thinking in terms of sort of a narrow a more narrow money kind of system which had far fewer safety nets and where people had to basically judge their own risks and and go under if they made a mistake”
Inflating away French debt would require either much higher inflation or a longer period of financial repression than for Germany or the Netherlands, raising the question of whether the popular mood in those creditor countries would tolerate it—making the survival of the eurozone under financial repression a major open challenge.
“France has got so much higher debt levels than um than uh Germany and the Netherlands... if you needed that much inflation to... get rid of French debts, what what happens to the popular mood in places like Germany and the Netherlands?”
The current credit bubble differs from 2008 in that expansion is concentrated not in regulated bank credit but in market credit, bond issuance, and non-bank ('dark') financial institutions, about which authorities still know little—making it hard to identify weak spots or intervene.
“the difficulty this time is not so much with an expansion of bank credit, but uh market credit and bond issues and non-bank financial institutions”
The pre-2008 buildup resulted from three individually good things combining into a disaster: downward wage/price pressure from competition in Southeast Asia and Eastern Europe, central banks holding rates low to ensure price stability, and an elastic financial system able to meet credit demand at those low rates.
“you had a buildup to the great financial crisis which was made up of three good things”
The 2008 great financial crisis was fundamentally a credit bubble, not an asset bubble; the asset bubble was just one symptom of a financial system with too much 'elasticity'—too capable of meeting credit demand at whatever rate the central bank set.
“It wasn't sort of an asset bubble as such. We sort of looked upon that as a kind of symptom of an underlying credit bubble”
A coming French fiscal crisis would be more dangerous than the earlier European peripheral crisis because France sits at the core—the Franco-German bilateral relationship is core to the core—so its breakdown would cause far greater damage and give governments strong incentive to do 'whatever it takes.'
“it's going to be like the European crisis but at the core now with with France being the the object of uh of concern as opposed to much smaller peripheral countries which makes it inherently just that much more dangerous”
It is undemocratic that the ECB's unconditional TPI program may already be being used to buy French bonds without transparency, since the central bank (not voters) makes the call, and the public should at least have an honest debate about the alternatives, costs, and migration paths.
“there's still of course the ECB program available TPI transmission protection instrument and we don't know whether it's being used at the moment which I find highly undemocratic”
The longer-run cure for the euro's ills is 'more Europe' (deeper integration), but this faces a democratic deficit: ordinary people respond that they never voted for Europe in the first place because there was little debate about its merits.
“the longer run cure for the ALS of the Euro zone is to have more Europe... The problem is you say to people, ordinary people, you need more Europe and they say, but I never voted for Europe in the first place.”
Japan's late-1980s boom and bust proved that low inflation does not guarantee financial stability, refuting the claim that controlling inflation is sufficient; this example was 'staring us in the face and we chose to ignore it.'
“the one particular thing you remember about Japan was a huge boom and bust, right? But there was uh no inflation at all. So all these people who were saying, 'Well, inflation, you know, keep inflation under control and everything will be fine.' We had a very good example of that not being true”
France's core problem mirrors the first US downgrade by Moody's: rating agencies do not see a political solution to an economic problem that desperately requires one, as the country is too internally divided (two prime ministers already) to reach agreement.
“what what what the downgrade the US downgrade cited then and could easily be cited today is that they don't see a political solution to an economic problem that desperately requires a solution.”
Russell Napier argues China will try desperately to escape its deflation problem and will end up with a bigger inflation problem, with currency depreciation being a major part of how it plays out.
“he thinks that one of the big things coming forward is that China is going to try desperately to get out of its deflation problem and they'll wind up with a big bigger inflation problem. But the depreciation of their currency will be a big part of what happens.”
Forecasting is impossible in complex adaptive systems; the future monetary order cannot be predicted, but a shift into competing geopolitical blocs will likely be reflected in reserve holdings and payment currencies rather than a negotiated new Bretton Woods.
“going back to complex adaptive systems, item number one is forecasting is impossible... if there's um a shift into sort of competing geopolitical blocks I I find it hard to imagine that that won't be reflected in reserve holdings and which currency uses payment purposes”
Defense spending now siphons money away from the real investments urgently needed for the coming era of scarcity—climate adaptation, climate mitigation, and demographics—creating a 'rock and a hard place' dilemma even though securing a nation's people is a government's first job.
“now all the money is going to get siphoned away onto defense... There are real things that need to be done with real investments. like dealing with climate adaptation, dealing with climate mitigation, dealing with the demographics”
Politicians avoid discussing the 'elephant in the room' (the euro's fragility) because naming it makes it manifest and could become a self-fulfilling prophecy, so the truth is deemed too dangerous to handle.
“once you start talking about the elephant in the room, it becomes manifest and it could also become a self-fulfilling prophecy. So the truth is just too too dangerous to handle”
France's fiscal position is severely deteriorated: its bonds now trade at a discount to Italian and Greek bonds, it has suffered multiple credit downgrades, its debt ratio is almost double Germany's, and debt service now consumes a bigger share of government expenditure than defense.
“the bonds are now I think trading sort of at a at a not a premium but a a discount to Italian and Greek bonds which is sort of extraordinary... the debt ratio is almost double what it is in Germany. Uh debt service is now um takes a bigger part of of government expenditures than than defense.”
Trump administration policy, by withdrawing the US from leadership and participation and threatening tariffs even against allies, is driving Asian and Global South nations toward closer cooperation (e.g., SCO meeting, India-China warming), though deep historical antipathies and border conflicts mean this cooperation is fragile and may not be durable.
“America has chosen to withdraw not just from leadership but from participation and then you get an increasing number of people who are saying well let's start thinking seriously about what the alternatives are”
Sovereign debt-to-GDP among OECD countries has nearly doubled from 43% in 2007 (just before the crisis) to 85% now, with deficits of six or seven percent in the US and France and no willingness to reverse the trend.
“the sovereign debt to GDP ratio in 2007 just before the crisis okay was 43%. Now it's 85%. And deficits of six or 7% in the US in in France”
Roughly 55% of the increase in US stock market valuation over the last five years has come from just 10 stocks, an extreme concentration characteristic of a boom-bust situation.
“Something like 55% of all of the increase in market valuation over the last five years has been in 10 stocks”
As BIS chief economist before 2008, White felt constrained from publicly stating that price stability was not enough because his clients (central banks) believed it was, so he pulled his punches—illustrating institutional pressure suppressing accurate warnings.
“I wish I'd had the courage at the time to say price stability is not enough... all my clients were basically saying price stability is enough. And so I did feel myself constrained in sort of saying what I thought was the truth.”
We are moving from an age of abundance to an age of scarcity.
“why you believe we're going from an age of of abundancy to an age of scarcity”
Moving to a bipolar or tripolar world without the United States—still about a quarter of global GDP—would significantly reduce global cooperation and impose big costs, such as the expensive reworking of supply chains.
“without the United States, you know, which is still a quarter of global GDP... the degree of global cooperation has got to be significantly reduced and there will be big costs involved in moving to that kind of bipolar or tripolar world. The supply chains, for example... all have to be sort of redone”
The Netherlands has a huge pension industry with about 1,600 billion euros invested for its citizens, much of it exposed to France with tens of billions of euros of exposure.
“Holland is a a huge pension industry with 1,600 billion u um outstanding for uh invested for our people in Holland, a lot of it is also exposed to France”
Really rich people are the ones who can not only see the boom-bust 'stop' coming but can position to profit from what comes after, and have the courage to act on it.
“really rich people are the ones that can not only see the stop coming, but can say, I'm going to profit from what comes after and have the courage to go for it.”
France is too divided a country to govern, having already cycled through two prime ministers without reaching agreement on fiscal action.
“the country is so divided now uh internally between the parties that they've gone through two prime ministers and I'm not sure how many more they'll have to go through”