I am not alone in proposing green quantitative easing. The following, published over the weekend is a very similar argument to mine:
Here is what the ECB could do to achieve its objective while overcoming both its ‘operational problem' and the ‘macroeconomic concern':
- The European Investment Bank (EIB) should be given the green light to embark upon a Pan-Eurozone Investment-led Recovery Program to the tune of up to 8% of the Eurozone's GDP, concentrating on large scale infrastructural projects while its offshoot the EIF concentrates on start-ups, SMEs, technologically innovative firms, green energy research etc.
- The EIB has been issuing bonds for decades to fund investments, covering 50% of the projects' funding costs. It should now issue bonds to cover the funding of the Pan-Eurozone Investment-led Recovery Program to the full; that is, by waving the convention that 50% of the funds come from national sources.
- To ensure that the EIB bonds do not suffer rising yields, as a result of these large issues, the ECB ought to announce its readiness to step into the secondary market and purchase as many of these EIB bonds as are necessary to keep the EIB bond yields at their present, low levels.
The merit of this proposal is that, essentially, it recommends that the ECB enacts QE by purchasing a single asset; the solid, non-toxic, non eurobonds issued by the EIB on behalf of all European Union states. Thus, the ECB's operational concern about which nation's bonds to buy is alleviated. Moreover, the proposed form of QE backs productive investments directly, as opposed as to inflating risky financial instruments.
The argument is on the blog of Yanis Varoufakis, the finance minister of Greece, and it makes complete sense. He even uses the language of the New Deal to support his case:
Come to think of it, what we have here is the potential for simulating a European New Deal without the need for a federal treasury, for any type of fiscal transfers, or for any new institution. While the richer nations, with Germany at the fore, will not need to pay a single euro toward this European New Deal, Europe needs leadership from surplus countries, like Germany, to bring this about.
So just what is the problem?
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The green bit looks a bit like an afterthought, an add-on. So the danger is that the investment majors on more roads, airports, i.e. not green at all. And even if all green it could lead to more emissions if not accompanied with emissions caps to prevent rebound effects/ growth in consumption a based emissions.
The nature of the investment is left up to the EIB. This is a weakness compared to Richard’s suggestion, for the UK, of giving democratic oversight of Green QE investments to appropriate ministries.
I think this is a consequence of Yanis’ “modest proposal” working within the contradictions of the eurozone. It’s a way to take some much-needed action without first having to rewrite the EU treaties. So it’s not ideal, but you have to start from where you are.
Incidentally, going back to previous discussion of Syriza’s strategy for staying in / leaving the euro: if the eurozone had Infrastructure QE, it would make it more realistic for Greece to stay in the euro.
Agree with all that
Odd how some are so blind to be unable to see it
Regardless of whatever merits this proposal may have, a lot of people will balk at the idea of taking financial advice from the finance minister of a bankrupt country.
Did he bankrupt it?
Varoufakis is probably the only literate economist in any Government in Europe -we need to listen to him.
Richard Murphy asks “Just what is the problem?”
The first problem with “investment” is that, at least in the case of Spain, it’s already overstocked with underutilised airports and roads. See:
http://www.businessinsider.com/spain-airports-empty-2011-6?op=1&IR=T
As for housing projects, all I can say is “LOL”.
Second problem is that (like Mark Burton) I’m tired of everything nowadays being prefixed with the word “green”. The Institute for Fiscal Studies produces a “Green Budget” every year. There’s nothing particularly green about it. But I appreciate that to carry any weight with the chattering classes, one has to use words like “green” and “sustainable” six times in every sentence.
Third, green QE is simply a glorified way of having the EZ communal printing press (i.e. the ECB) print money and spend it in periphery countries. But Germany etc don’t benefit from that largess. So effectively it’s just an indirect way of having Germany subsidise the periphery.
Fourth, green QE simply delays solving the BASIC PROBLEM, namely competitiveness disparities as between periphery and core. I.e. GQE would tend to raise inflation in the periphery. It is quite possible that the EXTENT of that rise in inflation would not be too serious (as suggested by Simon Wren-Lewis), thus A BIT LESS austerity could well be desirable in the periphery.
But if the periphery CAN TAKE more demand without exacerbating inflation, that can perfectly well be effected by relaxing the rules on EZ countries’s deficits and debts: i.e. there’s no need for any specific “green QE”.
If you think that Spain is the relevant comparator then it is hard to take anything you say seriously
Likewise your comment on housing projects
And let’s leave green aside: that’s just a side show you’re using to express personal prejudice
But my real issue is that what problem do you have with the subsidy of the periphery?
But you miss the point that GQE does three things:
a) Provides capital not otherwise available
b) Provides this as quasi equity
c) Provides AAA bonds for QE
And so
d) Creates liquidity and growth that are missing
Now why do you have problems with that?