ECB’s Quantitative Easing Must Target the Real Economy


It’s the consumers, stupid!

The European Central Bank’s attempt to counter-attack deflationary pressure by giving banks funds raised through QE is doomed to be both ineffective and anti-redistributive. The ECB must consider more unconventional policies if it hopes to get the real economy going again.

Press release – january 23, 2015

At the announcement of its quantitative easing program yesterday, the ECB showed that it has learned nothing from recent quantitative easing programs in the UK and the US, where the effects of QE on the real economy has produced no significant results.

“The experience of the US shows that QE is useful to the real economy only when they are combined with expansionary fiscal policies. In Europe, the idea is to combine QE with austerity policies, guaranteed to offset any potential benefits of QE. So, in the absence of a radical change in the eurozone’s fiscal stance, we expect the depression to continue.” said Thomas Fazis, member of UBI-Europe, referring to the conclusion of a recent paper he wrote.

Quantitative Easing is anti-redistributive

At its worst, such a program could increase inequalities. As the Bank of England itself concluded in a recent research paper (pdf): “By pushing up a range of asset prices, asset purchases have boosted the value of households’ financial wealth held outside pension funds, but holdings are heavily skewed with the top 5% of households holding 40% of these assets.”

In short: this QE benefits the rich, not the poor.

There is an alternative: Quantitative Easing for the People

Unconditional Basic Income Europe calls the ECB for an alternative monetary policy such as  distributing QE money directly to the pockets of citizens.

“QE for the people is not just a more efficient approach for directly stimulating the real economy, it is also more fair in the current context of deep social inequalities and the rise of extreme poverty in the eurozone. By doing so, the ECB could target two objectives at once.” Thomas Fazi said.

This might sound radical, yet many economists such as Anatole Kaletsky and Steve Keen have backed the idea.

Several proposals for such a policy have emerged recently, notably from Oxford economist John Muellbauer and the chief European economist for the French investment bank Natixis, Sylvain Broyer. Muellbauer calls distributing 500€ to every citizen in the Eurozone, while Broyer’s proposal amounts to 3,000€.

The amount of QE money unveiled yesterday by the ECB could, alternatively, fund a €2100 annual cheque to all residents of the eurozone.

“Such a policy could be a pragmatic, direct pathway towards an unconditional basic income for all in the eurozone. It would set a precedent.” UBI-Europe’s coordinator Stanislas Jourdan said. “Where citizens can be counted on to spend, banks have not shown with previous QE programmes that they can be counted on to lend.”

Quantitative Easing for the People would not violate EU Treaties

“As opposed to having the ECB financing governments and public entities, handing cash directly to the citizens is not explicitly prohibited by the EU Treaties.” Thomas Fazi explained.

Moreover, such a program would be far more protective of the independence of the ECB. By targeting the quantitative easing money to all citizens without distinction, the institution could not be blamed for interfering with governments.


Credit picture: CC Images Money

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