Can Europe print money to get out of its fiscal hole?
Warren Mosler has an interesting and provocative remedy for Europe’s current fiscal woes: the European Central Bank should simply print 1 trillion euros, and hand it out, on a pro-rated basis, to all the Eurozone states. This is a per-capita payment: it would be based on population, not on GDP, with the highest-population countries getting the most money.
Mosler reckons that spending would be unaffected, because the Eurozone countries are already up against their Maastricht limits, and that therefore inflation wouldn’t be affected either. More importantly, he says, the Eurozone debt ratios would come down, by say 5 percent of GDP across the board.
The interesting thing is that given recent weakness in the euro, something along these lines — if not quite as explicit — seems to be already priced in, to some degree. I don’t think anybody in Europe is particularly worried about inflation right now; if anything, deflation is more of a problem, especially in the PIIGS.
The big question, of course, is whether and how anybody at the ECB would ever let something like this happen, given its much-vaunted independence. Deflation worries might have to pick up quite a lot before it happens, and even then it’ll be a very tough sell among the European central-banking crowd.