The Euro Area Is Not (Yet) Ready for Helicopter Money

For both governance and practical reasons, the ECB cannot proceed without the approval of the national governments. The ECB lacks the technical capacity and information it needs to do the transfers. It would have to rely on the national Treasuries to serve as a relay or provide the relevant information (such as individual identifications for recipients). If all euro area member governments saw the existing fiscal rules as counterproductive, they might indeed give the ECB their blessing. But some members are likely to see helicopter money for what it is, a way of getting around rules they like. They will try to block it, either through constitutional means, the way the German Constitutional Court tried to block the ECB’s government bond purchase program (the Public Sector Purchase Programme, or PSPP) in 2017,[3] or by simply refusing to participate in the organization of transfers.

Decisions would also have to be made as to the size and distribution of transfers, across countries and across people. Should it be given to people or to households? Should people in Germany and, say, Latvia—a country whose GDP per capita is less than half that of Germany—receive the same amount? If not, who should decide? If the ECB, then it would have to make major distributional choices, a task that is best left to fiscal authorities and should be subject to parliamentary approval.

These distributional implications would add to the legal obstacles. The EU system has been built on the premise of a watertight separation of monetary and fiscal policies. Even if the ECB undertakes on its own initiative and implements through the banking system, a program of de facto cash transfers to households would almost certainly be challenged in courts. The German Constitutional Court, and likely several others, would probably define helicopter money as an economic (rather than monetary) policy program and argue that such a program is the responsibility of national governments and parliaments. [4]

Finally, helicopter money would involve risks for the ECB as an institution. Issues of mandate and independence have already arisen about the distributional implications of unconventional and even standard monetary policy (and specifically its cost to “the German savers”). They have also been raised about the increasing use of macro prudential policies, some of them with strong distributional implications. Helicopter money would heighten these controversies and lead to serious questions about the appropriateness of central bank independence. The risk seems to us to be too large to be taken lightly.

Could there be circumstances where the balance of risks and rewards shifts and the ECB proceeds with helicopter money? We believe it is unlikely. If there were to be a deep recession, it would most likely trigger the escape clauses in the fiscal rules, making helicopter money redundant. If instead there were to be a shallow recession or a prolonged slump, either one insufficient to elicit a fiscal reaction, it is unlikely that the ECB would be willing to cross the Rubicon. And if there is no recession, there is no clear need for helicopter money. This makes us skeptical that we shall see helicopter money in the euro area any time soon.