• Executive Board member sees legal, practical obstacles
  • Says ECB won't take rates into `absurdly negative' territory

The European Central Bank isn’t discussing directly financing government stimulus, or “helicopter money,” Executive Board member Benoit Coeure said.

“To be honest, I don’t see how it could work without some kind of risk-sharing with governments, which could be practically and legally problematic,” Coeure said in an interview with Politico published on the ECB’s website on Wednesday. “Whatever my own intellectual interest in helicopter money, as a Governing Council member I have a fair deal of skepticism and circumspection.”

The concept has come to the fore as central banks seek to ward off deflation and the ECB faces criticism that it is running out of stimulus options. While Governing Council member Peter Praet declined to rule out such a policy option and President Mario Draghi called the idea “very interesting,” Bundesbank President Jens Weidmann warned it would “rip huge holes in central bank balance sheets,” leaving governments and taxpayers to foot the bill.

The aim is to fuse monetary and fiscal policies and transmit cash as directly as possible to the economy, bypassing usual intermediaries, including banks. Still “helicopter money” -- conceived in 1969 by Nobel laureate Milton Friedman -- has never been attempted in a modern major economy.

‘Potent’ Package

Coeure defended the ECB’s latest stimulus package, unveiled on March 10, which included expanding monthly asset buying to 80 billion euros ($89 billion) from 60 billion euros, as “very potent, both in intensity and in sheer volume.” 

The central bank -- which also reduced the rate on cash parked overnight by banks to minus 0.4 percent -- has managed to reassure lenders about the potential adverse impact on their businesses, he said. Negative rates are not the ECB’s main instrument and are instead intended to support its policy, Coeure said.

“They know we will not take rates into absurdly negative territory,” he said. “But we can never rule out further moves. That would not be credible anyway.”

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