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“Helicopter money” to combat economic depression in the wake of the Covid-19 crisis

Jézabel Couppey-Soubeyran, 2 May 2020

[English] [français]

The Covid-19 health crisis is plunging our economies into a crisis of unprecedented proportions. To finance the emergency measures, EU Member States are rapidly increasing their debt levels by borrowing on the bond markets, while the ECB is launching new purchase programmes and further easing bank refinancing conditions. But increasing public debt and relying on bank credit to boost the real economy is not an adequate solution to the problem; to avoid recession and reduce the social costs of the crisis, Europe needs an innovative monetary policy that is as coordinated as possible with fiscal aid packages.

This note proposes the use, for a limited time, of the direct transfer of money by the central bank, i.e. “helicopter money”. Helicopter money is not a new form of central bank money or a new way of creating it; it is just a different way of distributing it and pouring it into the economy, without going through the banks and financial markets. In the current phase, to rescue the economy during this containment period, helicopter money should go to the States, to monetise public spending. Then, in a second phase, to reboot the economy, helicopter money could be paid to households and businesses to increase private spending without delay and without transmission failure, while continuing public spending to counter the depression and prepare for the future.

These temporary measures would preserve the financial room for manoeuvre that States have to meet the challenges ahead, while limiting the inequitable effects that accompany the usual measures. In the medium term, the proposals on the monetisation of public expenditure would also facilitate the financing of States’ investments in the ecological and social transition, in accordance with the objectives set out in the European Green Deal.

“Helicopter money” to combat economic depression in the wake of the Covid-19 crisis

Helicopter money explained

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