Mario Draghi first discussed the notion of ‘helicopter money’ in March 2016, saying “it is an interesting concept.” Since then however, the head of the European Central Bank repeatedly stated that the idea that central banks could distribute money directly to citizens, was fraught with accounting-wise, technical and legal complexity.” However the ECB had declined at several occasion to specify in detail which were the foreseen legal obstacles.
In a letter dated 29 November to Spanish MEP Jonas Fernandez, the ECB finally provides clarifications. And our interpretation of the letter lead to the conclusion that those legal issues are very weak and solvable.
The QE for People campaign praises the ECB for finally providing this legal clarification. “By providing a detailed answer on this point, the ECB acknowledges its understanding of our proposal, which many economists say could bring significant benefits to the economy” said Stan Jourdan, QE for People campaign coordinator.
Helicopter money must be designed as monetary policy
Eighteen members of the European Parliament have signed an open letter to the Head of the European Central Bank, emphasizing the need to consider “helicopter money” — a proposal to distribute money directly to people as a citizens’ dividend.
Somewhere in March 2015, the European Central Bank (ECB) launched its long-awaited programme of quantitative easing (or QE), adding lots of public debt to the private kind it has already been buying. Its monthly purchases will rise from around €13 billion ($14 billion) to €60 billion until at least September 2016. The ECB is just the latest central bank to jump on board the QE bandwagon. Most rich-economy central bankers began printing money to buy assets during the Great Recession, and a few, like the Bank of Japan, are still at it. But what exactly is quantitative easing, and how is it supposed to work? Continue reading “Helicopter money or European Unconditional Citizens Income?”
With Eurozone growth still sluggish, should the European Central Bank (ECB) consider a radical option – like helicopter money?
ING senior economist Teunis Brosens explains, in this eZonomics video, that the ECB has already employed quantitative easing and lowered interest rates below zero. But how effective these measures will be is unclear, he says.
Helicopter money is a reference to an idea made popular by the American economist Milton Friedman in 1969.
In the now famous paper “The Optimum Quantity of Money”, Friedman included the following parable:
Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.”
The basic principle is that if a central bank wants to raise inflation and output in an economy that is running substantially below potential, one of the most effective tools would be simply to give everyone direct money transfers. In theory, people would see this as a permanent one-off expansion of the amount of money in circulation and would then start to spend more freely, increasing broader economic activity and pushing inflation back up to the central bank’s target. Continue reading “What is helicopter money?”
In an interview given after the conference on the “Unconditional Basic Income” (UBI) organised in the European Economic and Social Committee, Phillippe Van Parijs argued that the EU should put in place such a basic income for all of its citizens, to help it escape the crisis, and to show that it is a community that “cares” for all its members.
Criticizing is easy. Making proposals is harder. Here is one, simple and radical, yet — I shall argue — reasonable and urgent.
Euro-dividend is how I shall call it. It consists of paying a modest basic income to every legal resident of the European Union, or at least of the subset of member states that either have adopted the Euro or are committed to doing so soon. This income provides each resident with a universal and unconditional floor that can be supplemented at will by labour income, capital income and social benefits. Its level can vary from country to country to track the cost of living, and it can be lower for the young and higher for the elderly. It is to be financed by the Value Added Tax. To fund a Euro-dividend averaging 200 Euros per month for all EU residents, one needs to tax the EU’s harmonized VAT base at a rate of about 20%, which amounts to close to 10% of the EU’s GDP. Continue reading “The Euro Dividend by Philippe van Parijs”
The four characteristics that make the difference between the euro zone and the dollar zone and a concrete proposal to save the euro.
The vulnerability of the European currency union is ultimately rooted in the extreme weakness of two major buffering mechanisms that have proved crucial to the sustainability of the currency union formed by the United States: inter-state mobility and inter-state solidarity. As little hope can reasonably be staked in increased mobility between member states of the European Union, it is of crucial importance to explore the way in which a far higher level of solidarity could be institutionalized between member states. After having considered and rejected a number of options, the paper ends up focusing on a universal euro-dividend paid to every resident of the European Union (or of the Eurozone) and funded exclusively or mainly by a Value Added Tax. Taking for illustrative purposes a monthly euro-dividend of 200 euros funded by a 20% EUwide VAT, it explores some of the key consequences of such a set up and the conditions of its political feasibility. Continue reading “No Eurozone without Euro-dividend”