March 11, 2016 – CNBC Class aired an interview with SEP Researcher Paolo Canofari, in which he discusses the growth outlook in Italy. When asked about the government’s projected economic growth rate for 2016, he states that the economy needs to grow by a certain amount in order to lower the debt-to-GDP ratio to a level compliant with EU regulations. Given 2015’s growth rate, as well as the low inflation, the number released by the Italian government might be a tad optimistic. It is concern about inflation that has motivated the European Central Bank to expand its quantitative easing program and maintain negative interest rates.
When asked to comment about the idea of directly injecting funds into the economy, hyperbolized by the Financial Times as “Helicoptering in Money,” he states that this suggestion is founded on concern that banks, for a variety of reasons, are holding on to liquidity and refusing to lend it. Without getting these funds into the hands of households and businesses, the ECB’s expansionary monetary policy cannot be converted into demand, which is a requirement for growth. Coordinated fiscal policies are needed to supplement the central bank’s efforts.