#ECB says '#HelicopterMoney' legally feasible under conditions

In a public letter, Mario Draghi (pictured) recognizes that making transfers directly to citizens is legally feasible if the design of such scheme is clearly within the monetary policy framework.

Since Mario Draghi first discussed the notion of helicopter money in March 2016, he repeatedly said that ‘helicopter money’ was fraught with accounting-wise, technical and legal complexity.” However the European Central Bank (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, which lead to the conclusion that those legal issues are 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 co-ordinator.

The ECB letter reads: “While the governments of euro area countries would not be the direct recipients of a cash transfer involved in such a scheme, legal complexities could still arise if the scheme could be seen as the ECB financing an obligation of the public sector vis-à-vis third parties, as this would also violate the prohibition of monetary financing.”

For the ECB, the 'helicopter money' scheme should be clearly designed as a central bank task in order to comply with EU regulation 3603/93. This regulation considers that the “financing of the public sector’s obligations vis-à-vis third parties” constitutes monetary financing and, therefore, is prohibited. This refers to a very hypothetical situation where, for example, the ECB would substitute for a public institution by fulfilling one of its financial obligations such as social benefits payments.

“The ECB is right to point out that helicopter money must be framed as a monetary policy tool if it is to be legally implemented in the eurozone. We have been persistently clear on this point in our proposal, and it’s great that the ECB shows alignment with us,” Fund Manager Eric Lonergan said.

Further on in the letter, the ECB says “an assessment has to be made of whether the task concerned is a central bank or government task.”

Commenting on this, Stan Jourdan said: “This clearly is the core question, but in fact the letter shows that the ECB already knows the answer: if a helicopter money programme is independently designed, decided and implemented by the ECB for the purpose of price stability, then clearly it is a monetary policy task.”

Eric Lonergan said: “The ECB has the knowledge, resources and capacity to design a citizens’ programme in a way that is compliant with its mandate. The ECB should take leadership in this exercise, before populists do it.”

This Thursday (8 December) the ECB’s governing council is meeting in Frankfurt and is set to decide on extending its quantitative easing programme beyond March 2017.

Now that the ECB has, in effect, confirmed that other options than QE and negative interest rates are possible in some circumstances, the governing council should refrain from extending QE. Instead, the ECB should dedicate enough time and resources until March to examine all possible options that would contribute more effectively to its price stability mandate.

Background

• Letter from MEP Jonas Fenandez
• Letter from Mario Draghi to Jonas Fernandez
• Citizens' Monetary Dividend Report
• Campaign pictures

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