"as regards non-standard monetary policy measures, we decided to extend the asset purchase programme (APP). The monthly purchases of €60 billion under the APP are now intended to run until the end of March 2017, or beyond, if necessary"The other interesting announcement was that they are now prepared to finance directly regional and local governments. Again, I quote:
"we decided to include, in the public sector purchase programme, euro-denominated marketable debt instruments issued by regional and local governments located in the euro area in the list of assets that are eligible for regular purchases by the respective national central banks."Yes, that's right. While the ECB is not allowed to finance national governments directly because of the infamous Article 123 of the Lisbon Treaty, paragraph 2 of that article states that those rules don't apply to "publicly owned credit institutions". Here are the relevant texts:
So, there you are! The ECB has decided that regional and local governments can be included.
1. Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.
2. Paragraph 1 shall not apply to publicly owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the European Central Bank as private credit institutions.
This is actually very good news. As far as I can see, it should now be perfectly possible for regional governments to emit a form of bond that they could sell to that nice Mr Draghi and get real Euros in return.
So, how about the following scheme? We know that the ECB is going to create €60 billion every month until at least March 2017. Given that the Eurozone's population in 2015 is 338,335,120, that means just over €177 for every man, woman and child in the Eurozone every month (and a total of €2660 each between January 2016 and March 2017).
Every region in the Eurozone should set up a citizen's bank for all the citizens living in the region. Every month, they could create bonds with a value of €177 times the population of the region. They would sell those bonds to the ECB, and use the money to make direct payments of debt-free money to the Citizens in their region.
For example, I live in the Midi-Pyrénées Region of France, which has a population of just under 3 million. So, every month, the Midi-Pyrénées Citizens bank could emit €532 million of bonds, that would be sold to the ECB. The bonds would say that the Region promises to pay the sum with interest at 0.0% after a period that would be as long as possible. How about on the 1st January 2116, for example?
If every Regional government in the Eurozone did the same thing, the €60 billion that Draghi is creating would go somewhere useful - namely into peoples bank accounts, rather than fueling yet more asset inflation.
People would no doubt use some of the €60 billion to simply pay off debts, which would actually mean that there would be no inflationary effect at all. But even the remaining money would mainly get spent into the economy, by allowing people to buy things like food, clothes, as well as paying for vital things like the rent. They proportion that would end up fueling inflation would be negliable. Note the huge difference with the current situation, where Draghi's €60 billion a month goes essentially to the fuel speculation in the financial markets.
Importantly, for the citizens receiving the money, it would be effectively debt free - they would not have to pay the money back - ever! We would at last be starting the switch from a money system in which roughly 97% of the money in circulation is in the form of interest bearing debt, to one where an increasing proportion will be "real" money that would never need to be paid back - at least not until 2116!
Could this really work? I think so.
The main problem would be the possiblity that there could be some restrictions on what sort of debt instruments the ECB is prepared to buy up. However, I doubt that such restrictions actually exist. I bet that currently, the ECB is probably happy to buy up any old rubbish that the commercial banks can find lying around. The whole point of the operation is to boost the markets, so I see absolutely no reason why a bond generated by a Regional authority could not be accepted. And as for the idea of a 0.0% interest rate, can I remind you that the ECB just decided to have a negative interest rate on deposits with the bank. I quote Mario Draghi again:
"as regards the key ECB interest rates, we decided to lower the interest rate on the deposit facility by 10 basis points to -0.30%. The interest rate on the main refinancing operations and the rate on the marginal lending facility will remain unchanged at their current levels of 0.05% and 0.30% respectively.Given that negative interest rates are apparently ok, we might even say that the Regional bonds could have a negative interest rate such that, on the 1st of January 2116, there would be nothing left to pay!
So, there you have it. A perfectly plausible way for Mario Draghi to use the €60 billion of newly minted ECB money that he is able to create every month in an intelligent way. QE for People is quite doable right now. What are we waiting for?