Five french organisations supporting the QE for People campaign have formed a coalition to push the debate at the national level. They presented their ambitions at a press conference in Paris on May 31st.
In November 2015, Positive Money launched a pan-european QE for People campaign and 23 NGOs swiftly joined in. The campaign started with the recognition that the ECB QE program would fail to deliver on its promise to boost the european economy. The Bank of England, for instance, reckoned that QE increased the wealth of the top 5% of the British population.
So far, the ECB’s QE programme has shown no sensible improvement on growth and inflation in the euro area. Professor Richard Werner – the first economist who coined the term ‘quantitative easing’ – said at a conference in Brussels last February that the current version of QE is inappropriate and a diversion from his original idea.
Denis Durand, an economist from the CGT Union at Banque de France, explained that the European Central Banks moved away from their doctrine when they implemented the QE in order to tackle the 2008 financial crisis. Despite this, deflation still threatens the eurozone today clearly clearly demonstrating that the current monetary policy misses its economic objective.
After exhausting all other remedies the Eurosystem, which is made of the ECB and the national central banks in the eurozone has injected approximately 80 billion euros per month into the financial markets ( Quantitative Easing). On top of that, the ECB is lending more that € 500 billion to european banks through its refinancing operations.
“The balance sheet of the ECB grew towards its maximum size at the height of the financial crisis. That show how serious the situation is. A large part of the cash it injects into the banking system sits on the balance sheet of commercial banks. This money is lost for the real economy.” Denis Drurand said.
This is the core of the issue: with the current QE programme, the financial markets are free to decide how they use the money created by the Central Bank. QE for People advocates that states and citizens, not the financial institutions, or large corporations, should decide on how the money created by the ECB should be used.
“Private banks are playing it easy by blaming central banks. That moves the light away form their own responsibilities.” Jézabel Couppey-Soubeyran, professor at Paris 1 University, said.
“When monetary policy is alone, it is doomed to fail”
“The ECB is failing because its acts alone against the whole burden of the current macro –economic adjustment in the eurozone. What should really be used is a combination of several instruments : monetary policy together with budgetary policy and macro-prudential regulation.” explains the economist. “For lack of a global policy-mix, the crisis could not be avoided, nor can it be overcome.”
The current monetary policy is dysfunctional. In spite of massive cash injections from the ECB, growth and investment remain flat and inflation does not take off. The ECB is unable to create additional nominal demand.
This is because the basic underlying theory of monetary policy does not work. The quantity of money in the economy does not increase in the same proportions as the money created by the ECB. And when it does increase, inflation does not follow.
There are two possible explanations. First, the quantity of money in the economy stems first and foremost from the demand for credit, not from the supply of cash by the Central Bank. Second, the current monetary policy goes through the bank’s balance sheets. The banks are channelling funds into financial markets, as opposed to the real economy.
The link between inflation and the quantity of money in the economy is an older issue. Before the 2008 crises, we already had a situation where inflation was not following the increase in the amount of money. The quantity of money was growing rapidly without inflation following suit.
Central banks have been interpreting that as a success of their policies to counter inflation, but Couppey- Soubeyran thinks differently. “If the Central Banks had really been on top of the fight against inflation, they would have succeeded in the war against deflation, which clearly is not the case.”
She concludes : “What we can see now is that inflation is not solely a monetary phenomenon. There are many other issues at stake, like prices on the commodities markets. Today, the prices which are really increasing in line with the quantity of money are financial asset prices, and those are not taken into account in the measure of inflation.”
After this joint assessment of the failure of the current monetary policy, we turned to the possible alternatives.
A massive plan for the green economy
Marion Cohen, Head of Research at the Nicolas Hulot Foundation for Nature and Mankind (FNH), presented its new report “A green QE to fund the future.”
The Nicolas Hulot Foundation is advocating a massive public investment plan in a green economy, that would be partly funded with money created by the ECB.
This plan meets two urgent needs : it would get us out the current economic slump, while deeply transforming our economies to make them sustainable, respectful of natural resources and eco-systems and of a fairer distribution of revenue and wealth.
Concretely, this plan consists in investing at eurozone level some € 300 bn a year (3% of the eurozone GDP) for 10 years. Examples of investments include mass transportation, renewable energies, energy efficiency for buildings and sustainable agriculture.
“This is not just a stimulus plan just for one sector of the economy. All sectors are concerned by the green transition.” Cohen said.
The Foundation proposes to use existing public investment banks, such as the European Investment Bank and its national equivalents. According to article 123.2 of the Lisbon treaty, those banks can be financed by the ECB, just like private banks.
According to the Foundation, the public debate around the plan is key for its success. The allocation of the investment fund should be publicly debated to ensure democratic and economically relevant choices. Marion Cohen thinks there are two areas where there is already a broad consensus: Renovating public buildings and transitioning agriculture.
“At the moment, we lack ambition. States need to take leadership.” Cohen concluded.
“Legally, helicopter money is in a grey area”
In another vein, Christopher Dembik, economist for the Danish investment bank Saxo Bank, presented the monetary dividend approach, which is also supported by the French universal income movement.
At this stage, this proposition has not yet matured but the idea is very simple : The ECB would distribute money for free directly to the Eurozone citizens. Technically speaking, it would be possible to this by using the social security number of each citizen.
The main argument in favor of this idea is to be able to quickly stimulate household spending and spur growth through consumption. But in certain countries where private debt is high (Spain, Ireland), this monetary dividend could also allow households to reduce their indebtedness by speeding up their credit repayments.
Another advantage to the monetary dividend is that It does not raise the public debt or interest on that debt. It bypasses the traditional banking system, without damaging financial stability.
From a purely legal perspective, this proposition enjoys a grey area. Indeed, if the article 123 of the Lisbon treaty stated a clear ban of government monetary financing, it would prevents the ECB from distributing a monetary dividend directly to the pocket of citizens.
According to Christopher Dembik, there is already an abundance of literature about the subject, it is an innovative idea commonly called ‘helicopter money’, a term coined by Milton Friedman.
“Behind the idea of helicopter money, there is also obviously the idea of universal income”, explains Christopher Dembik who specifies also that in the long run, a universal income should not be up to the ECB. “The universal income would be a wonderful, positive European project. But it would require a fiscal union and we are far from achieving it” concludes the economist.
From this point of view, the argument in favor of the monetary dividend would not solely be économic. It would also serve to revive the European integration.
A QE to boost employment and public services
Frédéric Boccara, economist and member of the French Economic, Social and Environmental Councilinsisted on the political dimension of monetary creation. “The ECB is a public institution, it is people’s money. Money is a common good” affirms Mr Boccara, also member or the économistes atterrés and the CESE.
“Before producing, one must invest. It is therefore only normal to need monetary creation. The question is – What is the democratic destination of this monetary creation?”
For Frédéréric Boccara, an alternative Quantitative Easing must lay on two both public and private legs in order to address two objectives : -Developing public services (education, research, health, etc…) -Developing employment and the ecological transition
Public services can boost demand right away (through salaries of public servicemen) but also to improve means of production. Indeed, public services ultimately serve the economy.
Concretely, Frédéric Boccara propose a European ecological, social, united and democratic fund used as an interface between the EU and its member states. The ECB would finance this fund by creating money free of debt. This fund would then lend this money to governments willing to invest in public infrastructures.
To complete such a fund, the ECB should also target its monetary creation by setting clear criterias (Employment, value added, ecology) when buying financial assets. Instead of injecting money in profitable and speculative assets with an investment grade AAA+, it should re-orientate its Quantitative Easing.
“France is pioneering this campaign”
Stanislas Jourdan, European co-ordinator of the campaign has said that the French coalition’s aim is to raise awareness of the failure of QE and its alternative. The presidential election in France offers an opportunity to push new ideas in the political debate.
Despite the diversity of ‘QE for People’ proposals, Stanislas Jourdan insisted that all of them must overcome the same obstacles – and realise that they are complementary rather than rivals. “We can imagine a short term stimulus package with the monetary dividend and meanwhile prepare an investment plan for the medium-long term.”
The future of Europe is at stake. We need to rekindle a positive vision for Europe with new, constructive ideas. “On the long term, why not dream for a moment that our movement inspires changes of the European treaty of Lisbon” said the coordinator. Stanislas Jourdan was pleased to announce: “France is pioneering this campaign. It is the first country to have such a coalition of organisations and to organize this type of conference. It is a good new for Europe !”
You can watch the conference below (in French):