Monday, February 20, 2017

Bill Mitchell — The ECB should not become a fiscal agent

On November 29, 2016, Mario Draghi, the President of the ECB wrote to Mr Jonás Fernández, a Spanish European Parliament member in reply to a request for clarification from the Chairman of the EP’s Committee on Economic and Monetary Affairs (ECON). The Letter discussed whether it would be legal under the Lisbon Treaty for the ECB to engage in direct monetary transfers to citizens bypassing the Member States and whether such a policy would be beneficial for economic growth. Several commentators have seized on the response from the ECB as saying that such a policy innovation would be both legal and beneficial. My view is that, in forming this conclusion, they have not fully understood the difference between a monetary and a fiscal operation. While I think the policy would produce positive results, in the sense that it would stimulate growth and employment and reduce unemployment, I also believe it would be illegal under the Treaty. Further, I don’t think it is a progressive position to argue that a group of unelected and unaccountable technocrats in the central bank should be in charge of economic policy. That should be the responsibility of the democratically-elected members of the government who are fully accountable every electoral cycle. The ECB should not become a fiscal agent. Rather, if the Eurozone elites cannot implement (which they cannot) a full federal treasury function then it should disband the monetary union in an orderly way.
Bill Mitchell – billy blog
The ECB should not become a fiscal agent
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

3 comments:

GLH said...

I would be willing to bet that PQE would be acceptable if there were a requirement that the money given out would be spent to pay back bank debts.

Matthew Franko said...

"Instead, they “propose an alternative form of QE which would make sure money is spent into the real economy and benefits those that need it the most."

It would help...

The "make sure money is spent" is the key concept for exploration...

Matthew Franko said...

For instance the CB could put a redemption date on any EUR balance they issue under this program... idt a national Treasury could do this...

So they would maybe provide a 60 day redemption date of any EUR issued this way... or maybe 90 days... no coupon...