Helicopter money might be the ECB’s best and worst options - Peterson Institute

Helicopter money could be both the best and worst options for the European Central Bank if the euro-area slowdown morphed into a recession, according to a Peterson Institute paper.

With monetary and fiscal policy limited -- the former by a depleted toolbox, the latter by budget rules -- handing out cash to the public could be an appealing alternative measure to combat a downturn, former IMF chief economist Olivier Blanchard wrote in the paper with Jean Pisani-Ferry.

However, such a dramatic step is fraught with hurdles, as well as major risks, including compromising the ECB’s independence. It would require the blessing of the bloc’s member states, including typical naysayers like Germany, and would also face hurdles, such as whether payments should be equal across the 19-country region or weighted by economic might. Such decisions on how to distribute funds would put the central bank in a very difficult position.

“In a way, helicopter money can be seen as a replacement for the still missing common fiscal capacity,” Blanchard and Pisani-Ferry said. “Its implementation, however, would raise operational, legal, and political challenges.”