PARIS – Not so long ago, the notion of the European Central Bank handing out money to governments or directly to citizens – so-called “helicopter money” drops – would have seemed outlandish. But today a surprising number of mainstream economists and centrist politicians are endorsing the idea of monetary financing of stimulus measures in different forms.
This represents a much-needed change in the conversation – one that, at long last, finally puts the focus squarely on stimulating the demand side of the European economy. After years of stagnant growth and debilitating unemployment, all options, no matter how unconventional, should be on the table.
The United Kingdom’s referendum decision to leave the European Union only strengthens the case for more stimulus and unconventional measures in Europe. If a large majority of EU citizens is to support continued political integration, strong economic growth is critical.
As research by McKinsey Global Institute (MGI) shows, despite bold quantitative easing and record low interest rates – the ECB was the first major central bank to introduce negative interest rates in 2014 – anemic demand continues to hobble GDP growth throughout Europe. In several EU countries, more than a quarter of the population has been unemployed for close to a decade, and political discontent is boiling over into extremism. The uncertainty and volatility in financial markets in the aftermath of the Brexit vote will further cripple demand.