Can Europe print money to get out of its fiscal hole?

By Felix Salmon
February 8, 2010
Warren Mosler has an interesting and provocative remedy for Europe's current fiscal woes: the European Central Bank should simply print €1 trillion, 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.

" data-share-img="" data-share="twitter,facebook,linkedin,reddit,google" data-share-count="true">

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.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see

Wasn’t “handing out” currency Hjalmar Schacht’s solution in early 1920s Germany?

Posted by david3 | Report as abusive

Is this any different than what the Federal Reserve does for the U.S.?

When the U.S. prints money, it runs the risk of inflation, at least relative to other currencies. Except for the renminbi, as China keeps it locked to the dollar. And maybe the yen, as Japan has a massive debt itself. And if the ECB prints a bunch of euros, the dollar-euro exchange rate may not suffer. The net effect: no inflation in the U.S. and Europe, thanks to our friends in China.

Posted by OnTheTimes | Report as abusive

Mosler has been advocating the same remedy in the US for months – per capita distribution from the Feds to the individual States. Applying this to the Euro Zone is a no-brainer since EMU “nations” are really more like US states anyway from a monetary and fiscal perspective. This crisis was inevitable once these countries ceded their powers as sovereign currency issuers and became mere currency users.

Posted by Sensei | Report as abusive

when do you stop? 2 trillion? ten?

Posted by rjs0 | Report as abusive

“When do you stop?”

Well, Mosler would say you “stop” when aggregate demand has been restored to more optimal levels – full, or fuller, employment, greater resource utilization, etc. And you “scale back” through higher taxes when inflation begins to heat up. Taxes destroy money and reduce the spending capacity of the private sector. That is their primary function in a fiat world.

Per Mosler, fiscal policy is the best tool the government can use to regulate the temperature of the economy. Faced with a collapse in aggregate demand the government will/should/must run larger deficits. Rather than bailing out banks or spending on time-delayed public works projects, Mosler advocates a bottom-up bailout of consumers via an open-ended, perhaps permanent payroll tax holiday. This would put more money in the hands of working Americans and lower labor costs for businesses small and large.

Posted by Sensei | Report as abusive

Every government in the world other than China is already following this plan. If you have faith in the ability of some governments to do more of it without sparking hyper-inflation, they should probably go for it. As long as some other country will give you more stuff in exchange for more paper, it’s a nice trade. China as the one clear surplus-running nation is starting to be a little uncomfortable and demanding pieces of paper that mean something, like shares in mining companies. There’s an amount of paper the RoW could try to give them where they would stop and say “No – give us ownership of your railroads instead, or we won’t ship you any more real goods”. If the RoW didn’t comply and instead tried to stick with the printing press model, domestic catastrophes with hyperinflation would result as tons of bills chase limited goods.

Posted by najdorf | Report as abusive

Can America?

Posted by csodak | Report as abusive

“Every government in the world other than China is already following this plan.”

Actually, you have it exactly backwards. The Chinese are the only nation stimulating on a massive scale. In the developed countries deficits have risen only because of automatic stabilizers like unemployment insurance and lower tax receipts. Efforts at “stimulus” in the US and Europe have been pathetic, ill-conceived, and totally hamstrung by the inordinate fear of inflation and of deficit spending. For the PIIGS and other EMU nations there is no way they can follow such a plan because they do not control their own currency and no longer enjoy fiscal autonomy.

Regarding China and it’s supposed trade surplus “power,” as long as China wants to sell goods in the US they WILL accept dollars in exchange. They are in no position to demand anything else for payment. I can’t conceive of any scenario where the Chinese would refuse to sell goods in the US. If they did, it would be just a temporary nuisance for US consumers – but it would absolutely destroy the Chinese economy.

Let’s just add “fear of Chinese power” to our growing list of inordinate fears.

Posted by Sensei | Report as abusive

“Printing Money” :

‘Sale of bonds by the government to the central bank.’ – so treasuries print it Felix, not the central banks.

In my language Treasuries debits bank/cash, credits a central bank liability and the central bank debits an asset and credits bank/cash/liability. Where does the latter originate from again ?

Presumably it becomes ‘push inflation’ in the money supply/-ies.

Sensei :”…deficits have risen only because of…” Surely it also rose because of over-spending, like on wars ?

(I am getting a bit irritated with the depth of these articles, then again we deal with columnists that most probably write for other publishers too).

Posted by Ghandiolfini | Report as abusive

Of course they should print money. This is a global, competitive economy and you can’t just stand by and let somebody else print more than you. Duh, economics 101. Smart guys up there, running this show.

Posted by russdward357 | Report as abusive

Dear Felix,

It seems the Anglosaxon press has Europe either Lehmanified or heading back to Weimar times, just to thrill the Germans….

Take a look at `Towards an Euro monetary fund´, proposal
by Thomas Mayer,chief economist Deutsche Bank and Daniel Bos -monetary-fund

Posted by amsterdammer | Report as abusive

In the case of the eurozone, a per capita distribution to the member nations would reduce debt levels and improve credit ratings, thereby reducing systemic risk. It would not flow into spending, as the stability and growth pact is already in place to limit that.

What could also be announced is an annual distribution of maybe 5% of GDP to the member nations to be used for debt reduction, with any violator of their spending rules not getting his payment.

It’s a whole lot easier to enforce rules by holding back a payment under this arrangement, than by trying to enforce fines and penalties under current arrangements.

Warren Mosler

Posted by warrenmosler | Report as abusive

Sensei: What I meant was, China has to take dollars in trade, but they don’t have to hold them as dollars. We have to take dollars back as investments in real assets, and China has been moving towards turning their dollar reserves into real assets (note the recent SEC disclosure of China investment fund’s holdings). We can try to fight the horde of dollars we have given China by printing more dollars and handing them out to U.S. citizens and corporations, but there’s a point where that kind of behavior sparks hyper-inflation because you have a vastly increased pool of dollars chasing the same real assets and a lack of faith in U.S. government fiscal and monetary restraint. When you push out your currency in bulk, you are giving away future claims on your economy that have real consequences.

Posted by najdorf | Report as abusive

This solution makes sense. The US has already printed over 2 trillion USD since the crisis began (the Fed has purchased 1.25 trillion alone Mortgage Backed Securities). The result has been a pick up in GDP growth without any inflation.

Btw, in regards to the Fed buying MBS – does that mean the Fed will actually own homes that are in default and be builing up signficant residencial real estate holding? Just curious.

Posted by Global_JT | Report as abusive

Warren said: “What could also be announced is an annual distribution of maybe 5% of GDP to the member nations to be used for debt reduction,..”

How could that work in honesty? GDP numbers are too easily fudged.

Posted by carol7 | Report as abusive