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”, (a special meeting where the President of ECB addresses the EU Parliament’s Committee on Economic and Monetary Affairs). This quarterly meeting is a special opportunity for members of European Parliament to ask direct questions to the Head of the ECB. Many questions arose about the quantitative easing program the ECB launched in March 2015.
One of the questions was asked by the Dutch Socialist MEP Paul Tang who mentioned Jeremy Corbyn’s idea of a People’s QE and Helicopter Money:
[Jeremy Corbyn] says what we need is QE for the people and not for banks. This is an interesting idea and some economists tend to agree with him, which makes it even more interesting.
I also saw this week Willem Buiter who says well, if Citibank is projecting that we are going into a global recession, what we need now is helicopter money – this is not the same as QE for the people – we need helicopter money not only in the euro and in the UK but also in the US and in China.
As a conclusion, Paul Lang asks whether the ECB could directly finance part of the The European Fund for Strategic Investments (EFSI) – also known as the ‘Juncker plan’ to invest 300 bn euros in the European economy.
At which Mario Draghi replies:
“For hundreds of years central banks have injected money in the economy through either banks and/or markets. That is what we know, and so we will certainly consider these ideas that are being discussed; they are being discussed everywhere and the ECB is part of these discussions in academic fora and in other circumstances.
We should also not underestimate the legal aspects that would apply to the euro area and to the ECB, so one should ask the question whether this helicopter money is consistent with the Treaties and so on.
I saying this not as a way to prejudge decision-making one way or another, but the gravity of the challenges right now basically would demand that we use all available instruments within our common knowledge, and that is what we know now.”
One has to always interpret central bankers’ language cautiously, but the striking thing seems to be that Draghi does not overtly dismiss any idea of helicopter money. Rather he says that it would require legal checks over whether the ECB could do such thing.
This is overall quite encouraging. And yes, we do agree there is great need for an official legal assessment on the ECB’s capacity to implement something like a QE for People.
Below is the video abstract of the sequence. Also find the full transcript of the dialogue here.