In the debate over a form of stimulus that many believe is at odds with the EU treaty, even the option with the fewest legal hurdles risks kicking off a political battle that contributes to the euro’s demise.
That view extends to economists who say such a radical step is needed to stop the currency bloc from slipping into terminal decline.
The analogy of a helicopter drop of free cash, conceived by US Nobel laureate Milton Friedman, has morphed into ideas ranging from coordinating monetary and fiscal policy to handing central bank-written cheques to citizens.
Strictly speaking, Article 123 of the Lisbon Treaty “does not exclude giving cash directly to people,” said Adair Turner, former chairman of the UK Financial Services Authority and now a senior fellow at the Institute for New Economic Thinking.
“In Europe, the moment you start talking about creating money and spending you get the question: ‘Who’s going to get it?’.”
As the ECB Governing Council meets in Frankfurt, the debate over what could possibly come next if the current round of bond purchases and negative rates fails to save the economy from deflation may seep into the discussion.
The topic may come up at Mr Draghi’s post-meeting press conference. Asked about helicopter money in March, he mused it was “an interesting idea.”
When that caused a stir in some circles — Bundesbank president Jens Weidmann called the idea “absurd” — ECB officials played down the notion.
Bank of England governor Mark Carney joined the debate on Tuesday, telling UK lawmakers that it can lead to a “compounding Ponzi scheme”. Mr Turner says firing up the printing press seems like a good idea.
Yet policy makers, wearied by six years of sovereign debt crisis, fell out over Greece’s bailout in 2015 and this year has seen discord over the refugee crisis and the UK’s referendum on its EU membership.
There’s little confidence that agreement could be reached over helicopter money even if conditions deteriorate to the point that it warrants serious consideration.
Among ECB Governing Council members, consensus to approve the tool “would be very difficult to reach,” said Gregory Claeys, an economist at the Bruegel institute in Brussels, who says depositing €1,000 into consumer bank accounts “would create a big boost in spending, and this would have quite an effect on prices.”
“The euro area is doomed to remain the victims of this Germanic obsession with the aftermath of the Weimar hyperinflation,” said Willem Buiter, chief economist, Citigroup.
“They’re learning the wrong lessons from history and I don’t think that will go away.”
In times of falling inflation expectations concept of Helicopter money has become an option, BBG story count shows. pic.twitter.com/e5FG0Y6FHw— Holger Zschaepitz (@Schuldensuehner) April 20, 2016