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Conventional Direction to Unconventional Measures: Using Quantitative Easing to Shape Eurozone Fiscal Capacity

Olimpia Fontana - Simone Vannuccini
May 2016

Eight years after the outbreak of the crisis, the Eurozone (EZ) fiscal policy remains fragmented at the national level. The proposal of this paper fills the structural gap between the monetary and the fiscal dimensions of EZ economic policy suggesting a ‘conventional’ direction to the unconventional Quantitative Easing (QE) policy of the European Central Bank (ECB). We propose an evolution for the QE able to tackle the shortcomings of the current ‘decentralized’ fiscal policy in the EZ. In a nutshell, we suggest a change in the composition of QE asset purchase that would be directed to buy European Investment Bank (EIB) bonds used, in turn, to finance real investments through the Juncker Plan programme. The rationale of the proposal is legitimated through an overview of the EZ gloomy macroeconomic conditions, and the State of the art of the ongoing policies. The mechanism is described in details, with a discussion of both its strengths and possible limitations.

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