The European Central Bank is already preparing for a recession


The current outlook regarding the economic situation in Europe and, in particular, in the eurozone caused a need for alternative solutions to address a potential economic recession, which some financial analysts and economists predict, is likely to occur sooner or later. Against this background, the EU Central Bank, the European Central Bank (ECB) will reduce the current volume of the government bond buyout worth €20 billion per month to about a half. The ECB is also considering a highly unconventional monetary policy “helicopter money” to reallocate money to households.

Using this policy is one of the possible solutions to the economic recession in the eurozone. The so-called helicopter money means that the ECB prints money and distributes it directly to households. This could be an attractive option for central bankers in the event of an economic recession, the study authors, economists Jean Pisani-Ferry and Olivier Blanchard, stated. Of course, only households in euro-paying countries would be eligible. “In a way, helicopter money can be seen as a replacement for the still missing common fiscal capacity,” the authors added.

Based on this along with the global development on the international foreign exchange (Forex) market, on Thursday afternoon of 28 November 2019, the single European currency (EUR) traded against the US dollar (USD) above the mutual exchange rate of US$ 1.10 per EUR. On the same day at 5:42 pm CET, the EUR/USD currency pair traded on the Forex market at a mutual exchange rate of US$ 1,1007 per EUR with the daily EUR appreciation of +0.08% against USD.

The idea of throwing money to households has attracted considerable attention not only from the financial community but also from European Union politicians. “By its nature, the central bank should only care about the stability of the monetary and financial system. This step is already on the edge of political decision-making and it is not the central bank’s role. If the central bank decided to do so, it would lose all respect, and above all, the independence,” warns the economist Jana Muckova, the director of Bondster. “The classical quantitative easing has one fault, namely that money may not get into the economy through bond purchases at all and may remain in banks. The helicopter money is skipping this step and throwing money directly to households and this should start the economy,” said Ms. Muckova.