Europe moves closer to Quantitative Easing:Inflation falls to 0.3% Carlo Bastasin suggests a useful policy tool

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.

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About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
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