Covid-19

What price to pay for monetary financing of budget deficits in the euro area vox, cepr policy porta

What price to cover monetary financing of budget deficits in the euro area

There keeps growing acceptance that some type of monetary finance is necessary, if not inevitable, in light of the severe nature of the downturn in the euro area. This column argues that while a monetisation of the deficits induced by the COVID-19 crisis would eventually raise the price level in order that, after a go back to economic normalcy, inflation would rise for two years, this is a cost worth paying in order to avoid future sovereign debt crises in the euro area. Moreover, the ECB, as the utmost independent central bank on earth, will be well equipped to avoid the inflationary upsurge from becoming permanent.