Professor Karl Whelan:

I am always happy to discuss helicopter money. The ECB will never approve it as a policy. I have thought about this. One of my areas of expertise is trying to figure out what is or is not legal for the ECB to do. If I ever got the chance to brief the governing council on this, I would try to explain that it is probably is legal and can be done. Its considered opinion is that this is fiscal policy. Everybody ends up being sent a cheque. It looks much like a tax cut or tax refund, so the ECB feels that it is a fiscal policy, when it is supposed to be dealing with monetary policy. I do not think that we will ever see it. The ECB has created low financing conditions over the past decade. It has made it not just free for Governments to borrow but instead Governments, including our own, have been able to borrow at negative interest rates. The ECB has created those conditions.

Looking at the pandemic response, we did not need the helicopters because the Government could source money at will. In a sense, the ECB has created almost helicopter money-like conditions by the back door, by making it cheap to borrow. That will probably continue, even if we see an increase in inflation over the next couple of years or higher interest rates. I expect sovereign debt borrowing costs to be low, which raises questions about whether we can borrow more. The recent ESRI paper by Professor McQuinn focused on whether we can just borrow more to spend on public housing, which brings us back to the dreaded fiscal rules. They have not gone away.