Andrea Terzi — European fiscal rules violate the savings-debt constraint

In any monetary economy, the savings–debt identity defines a fundamental financial constraint: any increase in financial assets must correspond to (or ‘be validated by’) an equivalent amount of new liabilities coming into existence. When we hold currency, or bank deposits, or government securities, or corporate debt, we hold a liability issued by the central bank, a commercial bank, the government, or a private business, respectively.

Money And The Real Economy
European fiscal rules violate the savings-debt constraint
Andrea Terzi, Professor of Economics, Franklin College, Switzerland