EU Governments Need Coordinated Strategy to Push Forward Recovery

The European Central Bank (ECB) is taking bold steps to achieve its inflation target, but its policies are beginning to look desperate. The euro area and the ECB are suffering from the same problem: fiscal and structural policies are not playing their part, and monetary policy alone is not enough to kick start a meaningful recovery with inflation.

This is no surprise. Once inflation expectations are low and interest rates are at zero or negative, it is very difficult for monetary policy to change those inflation expectations – short of implementing outright helicopter transfers, which could involve putting ECB-created cash directly in to citizens' bank accounts. But such a step would essentially amount to a fiscal transfer to citizens, which, while effective, needs democratic legitimacy and political support.