ECB's 'no' to helicopter money

People living in the 19-member euro area, who had drawn some hope from a March statement by ECB chief Mario Draghi, must have been very disappointed on Thursday when central bank governors managed to dash that hope in grand style.

Confronted with the specter of continuously low inflation in the eurozone, Draghi had called the idea of giving citizens some money for free to spend on goods and services "an interesting idea."

Of course he knew that this so-called helicopter money concept was anything but new. It was first brought up in the late 1960s by US economist Milton Friedman when he suggested in a thought game that a helicopter fly over a community and drop bills from the sky in the hope consumers would immediately dash to the stores and spend their windfalls.

The ensuing surge in demand, the theory went, would kick-start the economy and persuade producers to raise their prices, making deflation fears a thing of the past.

'No' from governors

This concept has never been tried out in the real economy, and at a board meeting in Frankfurt on Thursday, leading ECB officials made it abundantly clear they wouldn't exploring hitherto unchartered territory anytime soon.

The underlying message was that in providing helicopter money, the central bank could not make sure it wouldn't cross the line between monetary policy (its core remit) and fiscal strategy (not its business at all).

ECB Chief Economist Peter Praet flatly brushed aside any hopes of a windfall by saying "helicopter money was not even being debated among ECB officials."

Italy's central bank chief Ignazio Visco chose to hide behind the assumption that "giving away helicopter money would be hard to implement legally," adding many governors would have severe moral misgivings about such a move.

But quantitative easing and low-interest rate policies haven't yielded the desired effects, with inflation in the eurozone still light years away from the ECB's recommended annualized rate of little under 2 percent.

But that didn't cut any ice with ECB governors either. They were quick to claim that there had been nothing wrong about the central bank's recent stimulus measures, arguing the party had only been spoiled by "outside influences," such as continuously low oil prices which had been keeping consumer prices artificially low.

hg/cjc (AFP, Reuters)