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From CNBC:
The European Central Bank could easily appease the fears of default which have plagued markets regarding by creating money and giving it to its members, Mosler [Warren Mosler, founder and principal of broker/dealer AVM] said.
The ECB, "if it wants to credit any nation, it can," he added. "The ECB could make a distribution of, say, 10 percent of GDP to each member. The ECB can just credit the accounts of the member nations based on how many people they have. That would reduce all debt ratios this year by 10 percent."
Mosler also argued that because the newly-printed money would be distributed to EU member states, it would be non-inflationary.
The economics literature argues against Mosler's analysis. Several points are relevant.
1. The newly-created money would only have a non-inflationary effect if expectations were irrelevant and the money stayed out of circulation.
2. Information about the printing and expectations would have an impact through price and foreign exchange channels. Most prominently, there would be a de facto devaluation of the Euro. Through the exchange rate channel, import prices could rise, pushing up domestic inflation.
3. Dollarization--the increased use of foreign currencies as a transactions medium--could increase in the Euro region. That would defeat the basic purpose of a common area currency and erode the ECB's ability to conduct monetary policy.
4. The precedent that would be established could spill over with respect to other heavily-indebted countries. For example, markets would be concerned that the U.S. might resort to the printing press down the road to deal with its own looming fiscal imbalances. Such spillovers, far from easing concerns over debt, could actually narrow the window of opportunity that exists for the U.S. and major European nations to address their fiscal imbalances.
The European Central Bank could easily appease the fears of default which have plagued markets regarding by creating money and giving it to its members, Mosler [Warren Mosler, founder and principal of broker/dealer AVM] said.
The ECB, "if it wants to credit any nation, it can," he added. "The ECB could make a distribution of, say, 10 percent of GDP to each member. The ECB can just credit the accounts of the member nations based on how many people they have. That would reduce all debt ratios this year by 10 percent."
Mosler also argued that because the newly-printed money would be distributed to EU member states, it would be non-inflationary.
The economics literature argues against Mosler's analysis. Several points are relevant.
1. The newly-created money would only have a non-inflationary effect if expectations were irrelevant and the money stayed out of circulation.
2. Information about the printing and expectations would have an impact through price and foreign exchange channels. Most prominently, there would be a de facto devaluation of the Euro. Through the exchange rate channel, import prices could rise, pushing up domestic inflation.
3. Dollarization--the increased use of foreign currencies as a transactions medium--could increase in the Euro region. That would defeat the basic purpose of a common area currency and erode the ECB's ability to conduct monetary policy.
4. The precedent that would be established could spill over with respect to other heavily-indebted countries. For example, markets would be concerned that the U.S. might resort to the printing press down the road to deal with its own looming fiscal imbalances. Such spillovers, far from easing concerns over debt, could actually narrow the window of opportunity that exists for the U.S. and major European nations to address their fiscal imbalances.
