Monetary stimulus is much more fun when it buys you a holiday
Why not use QE to give holiday vouchers to northern Europe? No, really, why not?
It's always nice to read a proposal that could simultaneously ease the euro crisis and get you a free holiday to Barcelona. It's even more fun seeing the idea gestate from a slightly boozy tweet to a full-blown plan, set in motion by the disability blogger and campaigner Sue Marsh:
After a while, I had a thought. All of the countries in trouble were holiday destinations - Greece, Spain, Italy, Portugal even Ireland. The ones weathering the storm were the colder, northern countries. Would it not make sense to encourage and incentivise holidays? [...] Hell, was fun automatically not an option just because it was fun?
A few weeks ago, there were rumours of another 700 billion bailout for Eurozone banks. I had just watched Spanish banks get a bailout of more billions and the markets ate the extra money mercilessly in about 48 hours. With the press of a few buttons, the banks or markets appeared to have eaten the very money they had just created! [...]
I asked more seriously on twitter if any economists could explain to me why my holiday idea wouldn't be a better stimulus to the Eurozone than another bank bailout.
Marsh's idea was picked up by NIESR's Jonathan Portes, who wrote it up with Declan Gaffney, another prolific blogger on disability and welfare issues. Their plan sounds a lot like it would work, cost no more than a bank bailout, and as Sue says, be fun:
Our proposal is that they should issue vouchers to their citizens, redeemable only on spending in goods and services in those countries suffering financing difficulties (Spain, Ireland, Portugal, Greece, Cyprus and Italy). Holiday vouchers, in other words. So German holidaymakers could pay for their drinks in Cretan bars (and their flights, hotel bills, souvenirs, ferry tickets and the like) with "money" created by the ECB and distributed to them by their own government. The Greek businesses would in turn be able to trade in the vouchers for euros from the German government (via the banking system and the ECB).
This solves a number of problems. It would loosen monetary policy across the eurozone and ease the financing problems of the periphery countries. But most importantly, as Martin Wolf has long argued, the fundamental problem of the eurozone is not fiscal profligacy in periphery countries, but internal current account imbalances. Consumers in the periphery countries have been spending on goods and services from Germany and the Northern countries, but not vice versa, financed directly or indirectly by capital flows from those same countries. Now those flows have dried up; so one way or another, the current account balances must be corrected.
Both posts are well worth a read, and serve to drive home an important point: there are far more options to deal with crises than those that most policy makers think they actually have. When all you have is a hammer, everything looks like a nail; but European governments have far more than just hammers in their toolbox.