Sat Mar 12th, 2016 at 11:08:44 AM EST
Two days after the latest round of ECB tinkering with the Eurozone's monetary parameters, I find nothing but a bored silence at the European Tribune.
This is distressing, as it exposes me to the risk of having to think for myself.
So I will expose my naive and shallow thoughts, in hope of provoking some enlightenment...
|So, Super Mario the plumber has apparently thrown the kitchen sink at the Eurozone economy. This is the big bazooka, we are told. He has hit the lower bound on interest rates, he admits.|
But what has the ECB ever done for us anyway?
Vítor Constâncio, Vice-President of the ECB, concedes : not much, actually... Saved us from outright deflation, but provoked bugger-all economic growth, by their own estimates :
ECB staff estimated that, without our policies, inflation would have been a third of a percent negative in 2015 and would have stayed significantly negative throughout 2016
We estimate that two thirds of one percent of the registered growth in the past two years was due to our monetary policy.
Perhaps the only major result of ECB intervention in the past few years has been the boosting of asset prices, as the market is awash with cheap money. The indirect result of this is the severe worsening of income equality, between the owners of assets on one end, and working people, employed or not, on the other, as unemployment rises and real salaries decline. The "kitchen sink" measures will certainly accentuate this trend, with further QE and purchasing of corporate bonds (i.e. direct financing of the biggest corporations).
To normalise inflation in the euro area we urgently need higher growth that can reduce negative output and unemployment gaps, using all really available policies. If not monetary policy, then what?
What indeed? Although ECB rhetoric always puts inflation to the fore (it is their sole mandate), it's clear they are preoccupied with employment and incomes, as they should be. In Draghi's remarks the other day made it clear that he thinks governments should be spending more on infrastructure, (i.e. increasing their deficits), but he knows that's not going to happen (unless Merkel has another epiphany?)
So... Last September :
Mario Draghi is open to considering helicopter money - Positive Money
Legal research should be conducted to check whether `helicopter money' would be legally feasible in the Eurozone, said the President of the European Central Bank addressing a question from a Member of the European Parliament.)
On September 23rd 2015 Mario Draghi addressed the European Parliament at the quarterly "Monetary Dialogue"
Draghi press conference | The Guardian
Draghi: Helicopter money is interesting
Q: Could the ECB consider `helicoptor money' if the new measures announced today don't have their necessary effect?
Draghi replies that the idea is "interesting", and being studied by academics but the European Central Bank "hasn't really studied the concept yet".
... so the ECB hasn't done its homework yet... But as they are running out of options, it's clear that the idea is tempting to some among them.
Open question : what might ECB "helicopter money" look like?