Paul De Grauwe, Sebastian Diessner, 18 June 2020

There is growing acceptance that some form of monetary finance is needed, if not inevitable, in light of the severity 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 increase the price level so that, after a return to economic normalcy, inflation would rise for a couple of years, this is a price worth paying to avoid future sovereign debt crises in the euro area. Moreover, the ECB, as the most independent central bank in the world, would be well equipped to prevent the inflationary upsurge from becoming permanent.

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