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Economists find ECB stimulus shrank eurozone inequality
FRANKFURT AM MAIN, July 19, 2018 (BSS/AFP) – Ultra-low interest rates and
massive bond-buying by the European Central Bank boosted incomes for the
poorest eurozone households more than the richest and eased inequality,
economists argued in a study released Wednesday.
“Expansionary monetary policy, both standard and non-standard, tends to
reduce income and wealth inequality,” the experts from the ECB and Princeton
University found after studying data from the four largest eurozone countries
— Germany, France, Spain and Italy.
Although not an official ECB position, the economists’ conclusions are
certain to feed into a fiery eurozone-wide debate over the impact of the
central bank’s measures on ordinary households.
Critics have charged that low interest rates rob ordinary people of income
on their nest eggs, or that bond-buying favours the wealthy by driving up the
value of financial assets.
But the bank’s defenders say its policy palette has succeeded in boosting
growth and avoiding deflation, making the eurozone as a whole better off.
In the years after the 2008 financial crisis, the ECB first looked to the
“standard” policy of lower interest rates, aiming to ease access to credit
and in turn stoke economic growth and inflation.
When expansion and price growth remained sluggish, policymakers opted in
2015 for so-called “quantitative easing” (QE) — printing money to buy tens
of billions of euros per month of government and corporate bonds.
Mario Draghi and other ECB leaders believe QE has succeeded in shunting
money into productive parts of the economy and boosting growth and inflation,
claiming the bank has helped create 7.5 million jobs since 2013.
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– Wealth inequality –
In Wednesday’s paper, the ECB economists found that lower interest on
savers’ cash piles was more than made up for by the reduction in unemployment
and higher wages they enjoyed.
On top of low rates, QE has reduced income inequality by slashing
unemployment among the poorest households, the economists said.
“Monetary policy in recent years benefited most households and did not
contribute to an increase in wealth, income or consumption inequality,” they
concluded.
Stanislas Jourdan of Positive Money Europe, a Brussels organisation that
campaigns for more progressive monetary policy, charged that “the study
underestimates the impact on wealth inequality” of the ECB’s QE programme.
The paper says bond-buying increased the net wealth of the least well-off
fifth of the population by 2.5 percent, compared with just 1.0 percent for
the richest fifth.
But that figure was “meaningless” in real terms, Jourdan said, as such an
increase would mean a few tens of euros more for the poorest but several
thousands for the richest.
“Even more interesting would be to have counterfactual studies” of
different ways of pumping money into the economy such as direct cash
transfers to households, which Jourdan suggested could be designed to be more
equitable.
BSS/AFP/HR/0950