Helicopter drops in the Eurozone may be a legal obligation of the European Central Bank (ECB).
The laws governing the ECB are extremely clear, and repeat three features which policy must comply with:
1. The overriding objective of the ECB is price stability, which has been defined by the ECB, under the intellectual guidance of the German economist, Otmar Issing, as ‘below but close to 2%’.
2. The ECB must act independently.
3. Policies aimed at financing the budgetary policies of governments are prohibited.
Subject to 1-3 the ECB can use whatever monetary operations it “sees fit” (see article 20).
Properly defined helicopter drops, however, are not a problem. Here’s the European version:
The ECB announces a TLTRO programme, where it provides perpetual, zero coupon loans to banks. Banks, in turn, must extend these loans on the same terms to any EZ citizen who applies for a loan up to a specified maximum per adult, say €600. The banks administering the program would be paid an admin fee, say 10bps. Banks could provide the loan in the form of a deposit at their bank, a cheque, or in physical cash.
At zero interest rates, this process has no net impact on the ECB’s balance sheet. Accounting ‘liabilities’ – ie bank reserves – rise by the same amount as assets – perpetual loans. Net income is unaffected. With negative interest rates on reserves, the net income of the ECB in fact rises, although this may change in future.
This process is clearly legal under EZ law. It would be done with the sole objective of meeting price stability. It preserves ECB independence, there is no involvement of governments, national treasuries, taxation or government spending.
This method of implementing helicopter drops in Europe has the further advantage that it is the extension of an existing programme (TLTROs), and puts the burden of administration on an existing, relatively efficient, infrastructure – the banks.
Now, why might this be a legal obligation of the ECB? If it provides the highest probability that they will meet their mandate of price stability.