The latest inflation data for the Eurozone shows inflation at only 0.3 %. Many analysts are beginning to worry that prolonged low inflation will reinforce economic stagnation (See the analysis of Gavin Davies in the Financial times on this.) An Italian scholar Carlo Bastasin of the School of European Political Economy in Rome has made a very sensible proposal for the establishment of a new debt instrument that incorporates debt from balanced regional components of the Eurozone which he calls EQUIP.EQUIP stands for European quantitative easing intermediated program . A new Asset Backed Sovereign debt instrument would be created by securitizing the different underlying public securities drawn from the existing Eurozone public securities “composed according to a pre-defined key representing each of the states’ contribution to ECB capital.”
The Brookings Institute has published a short paper by him recommending this course of action. The idea is one that I and some other economists including Gavin Davies have argued for in the past and it would help Europe escape from stagnation by using the central bank to buy some government debt thereby ensuring adequate liquidity and sustainable low interest rates to promote recovery . Stimulative fiscal policy would also be needed at the same time. If the policy were implemented and the sovereign debt European debt instrument created Europe would be potentially a lot better off because their central bank would be much closer to a real central bank like the Fed than it is now.