Germany won't launch legal action if ECB uses "helicopter money"

Jessica Morris
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Interest rates could be going even lower in the Eurozone (Source: Getty)

Germany has denied that it would consider legal action if the European Central Bank resorted to "helicopter money" as it fights off economic stagnation.

It follows a report by German newspaper Der Spiegel said the government could seek a legal clarification of Frankfurt's mandate if it opts for the controversial policy.

"Helicopter money" is the brainchild of American Nobel prize laureate Milton Friedman. It is an extreme form of monetary stimulus which would involve dropping free cash directly into the pockets of ordinary people.

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Despite the idea gaining prominence recently, ECB Vice President Vitor Constancio and Chief Economist Peter Praet have both said it is not an option.

A spokesperson for the Germany ministry said today: "It is only independent within the framework of its legal mandate but it's not true that the German government is considering legal steps."

George Magnus, an associate at Oxford University's China Centre and a senior adviser to UBS, has said "helicopter money" could be on the cards.

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"So is the ECB’s arsenal now bare? If it sticks to the general approach to policy it has currently then yes. But, though this is inconceivable as thing stand, there are things the ECB could theoretically do," he wrote in Prospect Magazine.

"It could take us towards Milton Friedman’s 'helicopter money.' This would involve the ECB taking a more direct role in creating money that might be distributed directly to households, companies and banks, for example by buying loans from banks, or public debt directly from governments, or financing cash distributions in the form of tax cuts or investment allowances."