May 25, 2016 / 12:51 PM / in a year

ECB should not consider 'helicopter money': economists

(Reuters) - The European Central Bank is not likely to ease monetary policy again this year, according to a slight majority of economists in a Reuters poll, and a strong majority say it should not consider “helicopter money” as a future stimulus measure.

The European Central Bank (ECB) headquarters are pictured in Frankfurt, Germany, September 3, 2015. REUTERS/Ralph Orlowski/File Photo

The latest Reuters poll comes on the heels of increasing optimism that the euro zone economy, while still not performing strongly, is doing better than many had expected at this point, even if it is not generating any inflation.

Fifty of 55 economists polled this week said no when asked if the ECB should consider helicopter money to stimulate the economy. ECB President Mario Draghi signaled last month that the Governing Council had even not discussed it.

“Real helicopter money, i.e., crediting household accounts, seems technically not possible,” said Jean-Louis Mourier, economist at Aurel BGC in Paris.

“The ECB cannot give money to states, even by buying public bonds, to help them to give money to citizens. It would be assimilated to direct financing of public spending, which is totally forbidden by European Treaties.”

Draghi has instead repeatedly defended the ECB’s already ultra-loose monetary policy and sought the support of euro area governments in implementing economic reforms that would help stimulate demand within the monetary union.

Just two months back the ECB unleashed a barrage of stimulus measures, including boosting its monthly purchases of bonds to include corporate debt and slashing rates to record lows.

But the euro hasn’t weakened as much as policymakers would have preferred, while inflation dipped back below zero in April, far from the ECB’s 2 percent target ceiling, even as growth appeared to have picked up pace at the start of the year.

That improvement in growth, along with expectations that the Federal Reserve may raise rates next month on growing evidence the U.S. economy is on a more solid footing will likely weaken the euro, allowing the ECB to stand pat for now.

ECB Vice President Vitor Constancio on Tuesday said further rate hikes by the Fed would be “good news” because it would signal the world’s largest economy was doing well.

About three-fifths of the economists who responded to an extra question said the ECB won’t ease again this year. And the unanimous consensus from the wider sample was that Draghi will hold policy steady at the June 2 meeting.


A recent brightening in the euro zone’s economic outlook has certainly helped.

Following a pickup in first-quarter growth, data on Wednesday showed German business morale in May hit its highest level so far this year, suggesting Europe’s biggest economy has held some of that momentum in the current quarter.

“ECB policymakers have recently been out in some force stressing that patience is needed in getting euro zone inflation up,” said Howard Archer of IHS Global Insight in London.

“Indeed, some of the measures have not even started to kick in yet, such as the Targeted Long-Term Refinancing Operations, and the ECB has not yet started to buy corporate bonds.”

When it starts buying corporate bonds in June, the ECB will start small before ramping up monthly purchases to 5-10 billion euros, Reuters reported exclusively on Wednesday.

The median forecast from the regular survey also showed the ECB will hold both its refinancing and deposit rates steady at zero and -0.4 percent, respectively, until the end of next year.

Still, two-fifths of economists in the poll said the ECB will ease again this year by either cutting rates further, or expanding its quantitative easing program or through both.

But economists are more split on whether the ECB’s negative deposit rate policy is doing more harm than good.

“The negative deposit rate has amplified the effects of the ECB’s balance sheet expansion,” said Kristian Toedtmann, economist at DekaBank.

“To a certain degree, it has been a sheer necessity in order to fend off an appreciation of the euro. But looking forward, further cuts would have a negative net effect by restricting banks’ capacity to lend.”

Polling by Deepti Govind and Sujith Pai; Editing by Ross Finley and Hugh Lawson

Our Standards:The Thomson Reuters Trust Principles.
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