ECB needs a monetary policy for the people

The ECB’s decision today — to boost quantitative easing and cut interest rates — is welcome, but not enough. It is hiking the amount of debt it buys each month from $60bn to $80bn, will buy some corporate bonds, and will even start lending to banks at preferential rates.

But by veering away from taking interest rates further into negative territory it sends a signal that — in all future stimulus measures will rely on printing money to buy ever more risky and unorthodox types od debt. Posing the question: who benefits — the elite or the people?

We’re in the seventh year of money printing and all we’ve done is buy time. That was the warning Bank of England boss Mark Carney gave the G20 in Shanghai. Globally, the recovery is over, the next phase of crisis under way; and global debts are $57 trillion higher than they were when Lehman Brothers went bust.

But of all the global players, it is the Eurozone that bought the least time. It rushed to impose austerity by treaty in 2012. As a result it is left with only monetary policy to face the coming storm — but here too its options are hamstrung by laws and treaties.

The Eurozone’s self-imposed rules, yet again, prevented the ECB buying the bonds of Greece: the country that needs the greatest boost. It prevents the ECB buying riskiest debt, as the Fed in the USA did. And the rules limit the amount of any country’s debt it can buy.

In short, the rules ensure the programme’s likely failure.

In case you’re wondering why it matters for Britain, the economic failure of Europe would be a disaster for Britain, whatever you think of Brexit.

So it is time to end the charade. Just as the peoples of Europe have a say in the tax and spend policies of their own governments they should take democratic control of monetary policy.

Quantitative easing (QE) can be designed either to benefit the rich and the financial sector, or to benefit workers, consumers, pensioners and the unemployed.

There is no shortage of suggestions from the financial elite about how the next phase of QE should be done: Europe’s banks, carrying a trillion dollars worth of non-performing loans, would like to see their own debts hoovered up by the ECB. Pension funds sitting on massive stock market losses would like to see the ECB buy shares.

But what about workers, students, households, consumers and small businesses?

One idea gaining ground among the 1% is “helicopter money”: €10,000 credited to the bank account of every citizen. It would be popular, but even then it would only buy more time. The question is: what are we buying time for?

In the past month two senior central bankers — Mark Carney of the Bank of England and Claudio Borio of the Bank for International Settlements — have warned that monetary stimulus is running out of effect; that negative interest rates that heighten the risk of stagnation; and they’ve called for states to do more radical “structural reforms” to kick-start growth.

In the neoliberal playbook that means lower wages, more labour flexibility, less regulation and more secretive global trade treaties; it means relentlessly slashing at welfare, pensions, education and healthcare spending.

But there are two good reasons why nobody’s been prepared to do this yet.

First, as Greece shows, it would bring the political collapse of the centre. Second, it would require a massive debt write-off, to free the private sector to invest, restructure and grow.

But there’s an alternative. The peoples of Europe should demand democratic control of the next monetary stimulus.

They should demand the ECB buy up the distressed debts of banks, countries and households. It should buy equities if needed. And it should design the new QE so that, through every channel, it boosts consumption, redistributes incomes and erodes debt.

But this form of QE would be designed no longer to keep the ailing neo-liberal model of capitalism afloat, but to promote transition to a different model: not just via green energy investment but thorugh a massive Marshall Plan-type regeneration programme for Europe.

If you print money on this scale, then the transmission mechanisms via which it spills over into growth have to be designed and controlled democratically.

They have to serve the people first, the financial elite last. If Mario Draghi can buy the debts of Volkswagen, and maybe the shares of Volkswagen, to boost their value, then he should be able to write off the auto loans of millions of Volkswagen drivers, or finance free university education across the Eurozone.

When Britain came off the Gold Standard in 1931, a hapless Labour minister is reported to have said: “Nobody told us we could do that”. In a modern economy more heavily driven by financial logic, the lesson is ten times true: monetary sovereignty allows to do a lot more than you realise.

Of course the Eurozone is a flawed entity. The German courts could, and would, block any of the measures I’ve outlined here. The Maastricht rules prevent, and make challengeable, any central bank action designed to write off debts. But if we can’t change these rules the project will fail. So we should suspend the rules: suspend all treaties that prevent the operation of the ECB as a resilient and flexible central bank; replace the present 2% inflatin target with an overt target of maintaining full employment.

If social democracy and the radical left across Europe united around the demand for massive, redistributive monetary expansion, it would electrify the continent.

Anybody who says this can’t be done has failed to notice what the British government did last month: it cancelled its own treaty commitment to “ever closer union” by the subterfuge of “depositing an agreement at the UN”. The same process could be used to suspend the treaty obligations of the ECB.

The terrifying pall of stagnation threatening the globe means a new wave of monetary stimulus is inevitable. But we have a choice in the way it is designed: to keep the zombie system alive — even as its limbs fall off — or to replace it.