Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Posts Tagged ‘Bossone’

Krugman and DeLong Are Right, Eurotimidity Must Be Defeated. Here Is How

Posted by hkarner - 4. Juli 2016

By on July 1, 2016  RGE EconoMonitor

From Eurotimidity to Euroaudacity

A new proposal has come from a group of leading European economists (the Resiliency Authors) on how to shore up the Eurozone’s resiliency. Their recipe includes diversifying bank portfolios; decreasing banks’ overexposure to domestic loans; transferring the responsibility for banks’ rescue from national governments to the European Stability Mechanism (although the authors consider this option to be politically unfeasible); introducing fiscal expenditure rules (linking expenditure reduction to debt levels); strengthening the ESM, and making it more effective and better coordinated with the ECB; and further adjusting competitiveness with more structural reforms.

Would these measures improve the Eurozone resilience to future bad shocks?


Yet, is resilience the very first priority for the Eurozone at this point in time? Is it really what the Eurozone needs now? Den Rest des Beitrags lesen »

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Fiscal Debit Cards and Tax Credit Certificates: The Best Way to Boost Economic Recovery in Italy (and Other Euro Crisis Countries)

Posted by hkarner - 11. September 2015

 Authors: Biagio Bossone, Marco Cattaneo, Enrico Grazzini & Stefano Labini  ·  September 8th, 2015  ·  RGE EconoMonitor

A fiscal shock to ItalyRecently on this blog, Brunello Rosa had submitted an interesting policy proposal to boost Italy’s GDP.

Brunello’s proposal shares many analytical premises with the one we have articulated in a public appeal published at the end of last year,  concerning the issuance of tax credit certificates as a means to inject new purchasing power in the economy without creating new debt. [1]

We set out to compare the two proposals in today’s comment. This will offer readers a better understanding of their relative pros and cons but even more importantly to our purpose, it will give us an opportunity to discuss key elements of Brunello’s idea, which we think can be usefully incorporated into ours leading to a new much more powerful proposal.

Brunello starts from two premises that we fully share. The first is that Italy’s macroeconomic policy space is heavily limited by institutional constraints and market risks. Not only may Italy no longer use the monetary lever or devalue the exchange rate to pursue macroeconomic adjustment in the face of demand shocks, like any other Eurozone member; it also lacks sufficient fiscal headroom to exercise strong enough stimuli in the event of recession, stagnation or sluggish growth. Even the flexibility granted to Italy by its EU partners under the fiscal compact gives the country margins that are far too inadequate for its needs. Den Rest des Beitrags lesen »

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Helicopter Money, Central Bank Independence and the Unlearned Lesson From the Crisis

Posted by hkarner - 5. September 2015

Author: Biagio Bossone  ·  September 4th, 2015  · RGE EconoMonitor

Biagio Bossone is chairman of the Group of Lecce (www.thegroupoflecce.org), and member of the supervisory council of the Center for Local Economic Development Financing (www.cefdel.org). He is Head of the Evaluation Unit of Public Investments, at Italy’s Presidency of the Council of Ministers (PCM), where he coordinates the Doing Business Sub-National in Italy 2012 initiative on the competitiveness of Italy’s South,

Macro policy coordination post crisis[1]

The Great Recession has offered an important opportunity to discuss if and under what circumstances central banks might be required to coordinate their acts with governments in view of achieving specific macroeconomic objectives, such as fighting deflation and overcoming economic depression. Yet central bank independence has become such a strong tenet of contemporary economic thinking that no discussion has taken place post crisis of cases where it might be called into question. In summarizing the main conclusions of last April’s IMF conference on ‘Rethinking Macro Policy’, Blanchard (2015) notes that there was general consensus among participants “that central banks should retain full independence with respect to traditional monetary policy”.

Why have economists been so reluctant to address this issue? Den Rest des Beitrags lesen »

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From Grexit to Exitaly? Let’s Stop This Madness

Posted by hkarner - 9. Juli 2015

Authors: Biagio Bossone & Marco Cattaneo  ·  July 7th, 2015  ·  RGE EconoMonitor

Biagio Bossone is chairman of the Group of Lecce (www.thegroupoflecce.org), and member of the supervisory council of the Center for Local Economic Development Financing (www.cefdel.org). He is Head of the Evaluation Unit of Public Investments, at Italy’s Presidency of the Council of Ministers (PCM), where he coordinates the Doing Business Sub-National in Italy 2012 initiative on the competitiveness of Italy’s South, under the partnership between the PCM and the World Bank Group (WBG).

If Berlin, Frankfurt and Bruxelles continue to say “no”, there won’t be alternatives to Grexit, and that’s the end of the euro as we know it. At that point the euro architecture will have failed (in fact, it has already failed) and the very idea of Europe of Europe’s founding fathers will have died (in fact, it has already died).

If Greece does exit the euro, nobody knows what will happen next. A country like Italy is seriously exposed, and the simple thought that it might be the next to tremble should be enough to scare the hell out of us all, including the euro orthodox thinkers who have brought us to this point. Den Rest des Beitrags lesen »

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A parallel currency for Greece

Posted by hkarner - 27. Mai 2015

Biagio Bossone, Marco Cattaneo 25 May 2015, voxeu

Biagio Bossone

Chairman, Group of Lecce; Member of the Surveillance Committee, Centre d’Études pour le Financement de Développement Local

Chairman, CPI Private Equity

Greece at a critical crossroad Den Rest des Beitrags lesen »

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Tax Credit Certificates to End the Greek Euro-Stalemate

Posted by hkarner - 24. März 2015

Authors: Biagio Bossone & Marco Cattaneo  ·  March 23rd, 2015  ·  RGE EconoMonitor

No solution is in sight for the Greek crisis. And while the EU and most of the Greek people do not want a breakup from the Eurozone, Greece and its partners should realize that they are at a dead end and that the time has come for them to consider bold alternatives, including a consensual and orderly exit.[1]

We question that leaving the euro via a break-up is the only option left, and think that another solution is possible, which could help the Greek economy to recover fast, and enable Greece to honor its debt obligations.

Greece should issue a special bond, called Tax Credit Certificate (TCC), which would give to its holders the right to a tax reduction in two years from its issuance. The TCC would be a two-year zero coupon bond, which the bearer could use, upon expiration, to pay taxes and whatever financial obligation is due to the Greek public sector at large. The TCCs would be negotiable, so that recipients would be able to convert them in euro at any time, at a market discount, and use the euro proceeds to finance any sort of expenditure. Presumably, the use of TCCs as a mean of exchange for direct transactions would also quickly develop. The TCCs might eventually evolve into a kind of domestic currency, which would not replace the euro but would circulate in parallel with it.

The TCCs would be distributed free of charge (helicopter-money-wise) to individuals and companies (based on each company’s gross labor cost bill). In particular, since TCCs would reduce gross labor costs for domestic enterprises, this would enhance their external competitiveness and support the recovery in Greek internal demand without creating foreign trade imbalances. TCCs would also be issued to fund social expenditure, possibly including job-guarantee programs. Den Rest des Beitrags lesen »

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Why QE in the Eurozone Is a Mistake

Posted by hkarner - 26. Januar 2015

Authors: Biagio Bossone & Richard Wood  ·  January 20th, 2015  ·  RGE EconoMonitor

Paul De Grauwe and Yuemei Ji (“Quantitative easing in the Eurozone”, VOX, 2015) have argued that quantitative easing (QE) can occur in the Eurozone without fiscal transfers.  This may be the case, but their analysis is fundamentally misplaced, as it is based on incorrect, incomplete or missing premises.  We think it would be a mistake for the European Central Bank (ECB) to embark on QE, and we see no reason to believe it would effectively assist the crisis-hit countries of the Eurozone overcome economic stagnation and deflation.

Misleading Assumptions

The first proposition of doubtful value is that the ECB should adopt QE to counter the deflationary tendency in the Eurozone.  There is little convincing evidence from Japan, the UK or the USA that QE has any significant effect on consumer price inflation. If you haven’t noticed, despite massive money injections, the deflation tendency is still present in all three countries. Rather, it is clear that QE (asset and longer-term bond purchases) directly raises asset and bond prices. That is the objective of QE.  QE does not buy-up ordinary goods and services, and consequently QE does not create consumer price inflation. Den Rest des Beitrags lesen »

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Unconventional monetary policies revisited (Part II)

Posted by hkarner - 8. Oktober 2013

Biagio Bossone (Chairman of the group of Lecce), 5 October 2013, voxeu

So-called ‘helicopter money’ policies – those in which government spending or transfers to households are paid for by printing money – involve both monetary and fiscal policy. This means they require extraordinary cooperation between the government and the central bank, which potentially undermines central-bank independence. However, emergency policies of this type may be justified during extreme systemic crises. Injections of helicopter money can increase net wealth and thus stimulate spending, and this mechanism is particularly important when conventional monetary policy is stuck at the zero lower bound.

Unconventional monetary policies: From quantitative easing to debt monetisation

The first column in this two-part series (Bossone 2013) reviewed the unconventional monetary measures adopted by a number of central banks following the financial crisis of 2007, and the major policy proposals that were submitted as the crisis evolved into a deep economic recession or depression. The policies were: quantitative easing (QE); forward guidance; negative interest rates; overt monetary financing of fiscal deficits, including in extreme neo-chartalist forms; and debt monetisation. Although debt monetisation is primarily intended to avert default by highly indebted countries, once implemented it would increase public and private spending – thus helping to stabilise output and employment.

Table 1 offers a snapshot of what I consider to be the main features of each policy type. In the table, policies are reported from left to right in ascending order of the directness of their impact on spending – from those that rely on changes in prices and expectations to those that affect spending by adding money balances to the economy.

Table 1. Unconventional monetary policies: A synopsis

The policies that have greater direct impact on spending (overt monetary financing, neo-chartalism) are those that combine expansionary fiscal impulses with permanent monetary financing (‘helicopter money’). This combination requires a degree of cooperation between the government and the central bank, with implications for central-bank independence (see below). Government (and political) involvement, as well as the necessary coordination with the central bank, entail longer policy gestation periods than for policies involving the central bank exclusively (forward guidance, negative interest rates, and QE). On the other hand, the transmission from the fiscal-plus-monetary policy impulse to the spending response – which is inherent in helicopter money options – is more direct, quicker and stronger.

Key pointers

The features of the different unconventional monetary policies discussed in Part I suggest a number of interrelated considerations:

  • Monetary effectiveness. In a highly-leveraged economy in a deep recession under deflationary expectations – with policy rates already at the zero lower bound – economic activity is constrained by aggregate demand rather than by the cost of money. Liquidity preference is high, lenders don’t lend, borrowers don’t borrow, and investors’ response to interest rates is weak. Under such conditions, the money issued by the central bank – typically against purchases of assets or through lending to banks – fails to yield enough economic stimulus. Interest rates lose their power to affect spending unless the large premium on liquidity is offset by a negative interest rate. Instead, money should be given out or granted for it to be effective, as occurs under helicopter money policies. Giving out money belongs to the realm of fiscal policy, not monetary policy.1 However, fiscal policy alone cannot implement helicopter money options, unless the government and the (independent) central bank cooperate (overt monetary financing) or if the government takes on full monetary sovereignty and finances deficits with money issuance (neo-chartalism).
  • Central bank–government cooperation. Monetising fiscal deficits (or indeed fiscal debts, as under debt monetisation) constitutes a joint monetary and fiscal policy decision. With the exception of neo-chartalist operations (where money is issued by the government, or by the central bank as a government department), cooperation between the government and the central bank is necessary to engineer helicopter money policies, and such policies require a specific framework for assigning duties and responsibilities to the two institutions.2 Obviously, this impairs or calls into question central-bank independence, but in times of crisis this kind of cooperation may be necessary for the collective good.3 It is critical in such times to have an appropriate framework in place for emergency policy action. This framework should specify which institutions do what under which circumstances, and under which accountability rules. It should also be clear who is responsible for activating the emergency framework. In other words, just as in wars or national emergencies ordinary rules may be suspended and decisions delegated to a chief commanding body, so might economic policy decisions be delegated during particularly severe systemic crises.
  • Money in central-bank models. In the macroeconomic models typically adopted by the central banks, there is no role for helicopter money. In these models, monetary policy operates through an interest-rate feedback rule – in which the interest rate is set in response to deviations from an inflation target and some measure of economic activity – and fiscal policy is usually restricted to a Ricardian setting (Tovar, 2008). There is no role in these models for money to be added directly into the public’s hands, or for the channels through which this money is spent. As a result, these models are not capable of gauging the real effects of such monetary-fiscal policies. At least for critical economic circumstances, there should be a way of introducing this type of money into the models in a meaningful way. This issued is discussed next.

Microfoundations of helicopter money

As argued by Buiter (2004), fiat money is not a liability of its issuer (the monetary authority), but it is an asset for its holder (the private sector). It is thus an integral part of the system’s net wealth. More generally, if the state is able to finance its own liabilities with permanent fiat-money issuances, the latter – for given current prices – add to the system’s net wealth.

In a dynamic stochastic general equilibrium model – with rational agents maximising utility over an infinite time horizon subject to inter-temporal budget constraints – an increase in net wealth through helicopter money issuance would lead agents to increase their current and future consumption – a ‘monetary wealth effect’. This means they plan to consume more than the income they earn by selling their labour for production. However, due to rational expectations, they realise that if they all behave this way then either:

  • Output in each period grows by enough to satisfy planned consumption (which is possible only if there are unemployed resources), or
  • The price level or the real interest rate rise so as to bring planned consumption back into equilibrium with output.

It follows that the Euler equation (which determines the solution to the agents’ optimal consumption programmes) reflects the monetary wealth effect, consistent with the current and expected resource-employment conditions. The same real effect would surely obtain in a model with an agent (the monetary sovereign state) that can spend and finance its own spending with helicopter money. This result vindicates the proposed measures to expand the money supply via overt monetary financing or neo-chartalism, which aim to inject new money independently of central banks‘ interest-rate policies – especially if these are limited by the zero lower bound.


Bernanke, B (2003), “Some thoughts on monetary policy in Japan”, Remarks by before the Japan Society of Monetary Economics, Tokyo, 31 May.

Bossone, B (2013a) “Time for the Eurozone to shift gear: Issuing euros to finance new spending”, VoxEU.org, 8 April.

Bossone, B (2013b), „Unconventional monetary policies revisited (Part I)„, VoxEU.org, 4 October.

Bossone, B and A Sarr (2002), “A new financial system for poverty reduction and growth„, IMF Working Paper No. 02/178, October.

Bossone, B and A Sarr (2003), “Thinking the economy as a circuit, in S Rossi and L P Rochon (eds.), Modern Theories of Money: The Nature and Role of Money in Capitalist Economies, Edward Elgar.

Buiter, Willem H (2004), “Helicopter money: irredeemable fiat Money and the liquidity trap”, CEPR Discussion Paper 4202.

McCulley, P and Z Pozsar (2013), “Helicopter money: or how I stopped worrying and love fiscal-monetary cooperation”, Global Society of Fellows, 7 January.

Tovar, C E (2008), “DSGE models and central banks, BIS Working Paper No. 258, September.

1 Grenville (2013). For an economy based on ‘noncredit’ money, see Bossone (2002) and Bossone and Sarr (2003).

2 Bossone (2013) identifies some essential elements of an operational cooperative framework.

3 Nothing makes the point more authoritatively than quoting the words spoken on this subject by Governor Bernanke (2003):
“[I]t is important to recognize that the role of an independent central bank is different in inflationary and deflationary environments. In the face of inflation, which is often associated with excessive monetization of government debt, the virtue of an independent central bank is its ability to say ‘no’ to the government. With protracted deflation, however, excessive money creation is unlikely to be the problem, and a more cooperative stance on the part of the central bank may be called for. Under [these] circumstances, greater cooperation for a time between [central banks] and fiscal authorities is in no way inconsistent with the independence of the central banks, any more than cooperation between two independent nations in pursuit of a common objective is inconsistent with the principle of national sovereignty.”

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Overt Money Financing of Fiscal Deficits: Navigating Article 123 of the Lisbon Treaty

Posted by hkarner - 23. Juli 2013

Authors: Biagio Bossone & Richard Wood · July 22nd, 2013 · RGE EconoMonitor

This column finds that current monetary and fiscal policies are misplaced and are largely impotent. It is argued that greater coordination between monetary and fiscal policy could provide substantial policy synergies needed to stimulate economic growth without increasing public debt. Practical policy options are reviewed.

Current austerity and quantitative easing policies are proving ineffective in the new era of historically low interest rates, high public debt, deleveraging, credit and liquidity crises, and recession/depression.

Recovery is failing to take hold with sufficient force, and some countries are sliding deeper into depression. Deflationary tendencies remain strong and unemployment is entrenched.


Many economies are entrapped in austerity straitjackets. While effective in certain circumstances – for example, when the economy is growing strongly or can rely on external growth – austerity fails to achieve its own objectives if applied during recession/depression. In such circumstances, austerity is counter-productive: fiscal revenues contract, budget deficits increase, and public debts are pushed upward. Austerity aggravates recession or depression. Aggregate demand and output are dragged down, unemployment rises, and where price rigidities prevail real incomes fall. Prosperity is denied, confidence collapses, and wealth is ruined. Den Rest des Beitrags lesen »

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Time for the Eurozone to shift gear: Issuing euros to finance new spending

Posted by hkarner - 8. April 2013

Biagio Bossone (chairman of the group of Lecce), 8 April 2013. voxeu

The crisis in peripheral Europe is deepening and spreading to the core of Europe. This column argues that it’s time for the Eurozone to shift gear. Eurozone members should use the Emergency Liquidity Assistance facility provided for under the statute of the European System of Central Banks to undertake ‘overt money financing’ of government debt. Greater cooperation – for a time – between central banks and fiscal authorities is, despite arguments to the contrary, in no way inconsistent with the independence of the central banks.

The crisis in peripheral Europe is deepening and spreading to core Europe, affecting France and now threatening Germany (Wood 2013). Political concerns in a number of Eurozone countries undermine confidence within the region. The Cyprus blunder has added to overall nervousness (see Wyplosz 2013). In Italy, falling productivity and falling real incomes, as well as prospects for yet more austerity to come, are further depressing the economy. Financial markets are giving the country the benefit of the doubt, in the expectation that a new government will soon be in charge. But how can the new government and Eurozone countries avoid a retrenching Italy becoming a major factor of instability for the whole Eurozone? Den Rest des Beitrags lesen »

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