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Modern Monetary Theory, Fiscal Dominance and the European Central Bank

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  2. Economics, Finance, Business & Management
  3. Credit and Capital Markets – Kredit und Kapital
  4. Vol. 55, Issue 4
  5. pp. 431–456

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Prinz, A., Beck, H. Modern Monetary Theory, Fiscal Dominance and the European Central Bank. Credit and Capital Markets – Kredit und Kapital, 55(4), 431-456. https://doi.org/10.3790/ccm.55.4.431
Prinz, Aloys and Beck, Hanno "Modern Monetary Theory, Fiscal Dominance and the European Central Bank" Credit and Capital Markets – Kredit und Kapital 55.4, 2022, 431-456. https://doi.org/10.3790/ccm.55.4.431
Prinz, Aloys/Beck, Hanno (2022): Modern Monetary Theory, Fiscal Dominance and the European Central Bank, in: Credit and Capital Markets – Kredit und Kapital, vol. 55, iss. 4, 431-456, [online] https://doi.org/10.3790/ccm.55.4.431
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Modern Monetary Theory, Fiscal Dominance and the European Central Bank

Prinz, Aloys | Beck, Hanno

Credit and Capital Markets – Kredit und Kapital, Vol. 55 (2022), Iss. 4 : pp. 431–456

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Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.55.4.431
Language
English
Pages
26
Keywords

Author Details

Prof. Dr. Aloys Prinz, University of Münster, Institute of Public Economics, Wilmergasse 6–8, 48143 Münster.

Prof. Dr. Hanno Beck, Pforzheim University, 75175 Pforzheim.

References

  1. Acharya, V./Pierette, D./Steffen, S. (2021): Lender of Last Resort, Buyer of Last Resort, and a Fear of Fire Sales in the Sovereign Bond Market. Financial Markets, Institutions & Instruments, 30, 87–112.  Google Scholar
  2. Åslund, A. (2012): Why a Breakup of the Euro Area Must be Avoided: Lessons from Previous Breakups. Peterson Institute for International Economics, Policy Brief No. PB 12–20, August 2018.  Google Scholar
  3. Balls, E./Howat, J./Stansbury, A. (2018): Central Bank Independence Revisited: After the Financial Crisis, What Should a Model Central Bank Look Like? Mossavar-Rahmani Center for Business & Government Associate Working Paper Series No. 87, Harvard Kennedy School of Government.  Google Scholar
  4. Beck, H./Prinz, A. (2019): Wie revolutionär ist die Modern Monetary Theory? Wirtschaftsdienst, 99(6), 415–420.  Google Scholar
  5. Beck, H./Prinz, A. (2022): Gefahr für unser Geld? Die neuen Propheten des Geldes und die Zukunft unseres Währungssystems, Vahlen, Munich.  Google Scholar
  6. Bibow, J. (2015): Making the Euro Viable: The Euro Treasury Plan. Levy Economics Institute of Bard College, Working Paper No. 842.  Google Scholar
  7. Bonefeld, W. (2018): Stateless Money and State Power: Europe as Ordoliberal Ordnungsgefüge. History of Economic Thought and Policy, 2018 (1), 5–26.  Google Scholar
  8. Bordo, M. D./Jonung, L./Markiewicz, A. (2013): A Fiscal Union for the Euro: Some Lessons from History. CESifo Economic Studies, 59(3), 449–488.  Google Scholar
  9. Brunnermeier, M. (2021): Die resiliente Gesellschaft, Aufbau Verlag, Berlin.  Google Scholar
  10. Chari, V. V./Kehoe, P. J. (2007): On the Need for Fiscal Constraints in a Monetary Union. Journal of Monetary Economics, 54, 2399–2408.  Google Scholar
  11. Chari, V. V./Kehoe, P. J. (2008): Time Inconsistency and Free-Riding in a Monetary Union. Journal of Money, Credit and Banking, 40(7), 1329–1355.  Google Scholar
  12. Cochrane, J. (2022): Inflation Past, Present and Future: Fiscal Shocks, Fed Responses, and Fiscal Limits. NBER Working Paper 30096.  Google Scholar
  13. Cooper, R./Nikolov, K. (2018): Government Debt and Banking Fragility: The Spreading of Strategic Uncertainty. European Central Bank Working Paper Series 2195.  Google Scholar
  14. De Haan, J. (2019): Some Reflections on the Political Economy of Monetary Policy. Review of Economics, 70(3), 213–228.  Google Scholar
  15. De Jong, J. F. M./Gilbert, N. D. (2020): Fiscal Discipline in EMU? Testing the Effectiveness of the Excessive Deficit Procedure. European Journal of Political Economy, 61, 101833.  Google Scholar
  16. Draghi, M. (2012): Rede vom 26.07.2012. Available at: www.ecb.europa.eu/press/key/date/2012/html/sp120726.en.html.  Google Scholar
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  18. Ehnts, D. (2022): Modern Monetary Theory. Eine Einführung. Springer, Heidelberg.  Google Scholar
  19. Ehnts, D./Hoefgen, M. (2022): Was ist Modern Monetary Theory? Perspektiven der Wirtschaftspolitik, 23(2), 108–119.  Google Scholar
  20. Ehnts, D./Paetz, M. (2019): Die Modern Monetary Theory: Staatsschulden als Steuergutschriften. Vierteljahreshefte zur Wirtschaftsforschung, 88, 77–90.  Google Scholar
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  22. Epstein, G. A. (2020): The Empirical and Institutional Limits of Modern Money Theory. Review of Radical Political Economics, 52(4), 772–780.  Google Scholar
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  29. Freixas, X./Rochet, J.-C./Parigi, B. M. (2004): The Lender of Last Resort: A Twenty-First Century Approach. Journal of the European Economic Association, 2(6), 1085–1115.  Google Scholar
  30. Friedman, M. (1970): The Counter-Revolution in Monetary Theory. Wincott Memorial Lecture, Institute of Economic Affairs, Occasional paper 33.  Google Scholar
  31. Galvin, R./Healy, N. (2020): The Green New Deal in the United States: What it is and How to Pay for it. Energy Research and Social Science, 67, 101529.  Google Scholar
  32. Hansen, P. H. (2014): From Finance Capitalism to Financialization: A Cultural and Narrative Perspective on 150 Years of Financial History. Enterprise & Society, 15(4), 605–642.  Google Scholar
  33. Havlik, A./Heinemann, F. (2021): Sliding Down the Slippery Slope? Trends in the Rules and Country Allocations of the Eurosystem’s PSPP and PEPP. Credit and Capital Markets, 54(2), 173–197.  Google Scholar
  34. Heinemann, F./Kemper, J. (2021): The ECB Under the Threat of Fiscal Dominance – The Individual Central Banker Dimension. The Economists’ Voice, 18(1), 5–30.  Google Scholar
  35. Heise, A. (2022): Modern Monetary Theory. Der keynesianische Stein der Weisen oder Voodoo-Ökonomik. Berliner Debatte Initial, 33(2), 79–92.  Google Scholar
  36. Hellwig, M. (2017): A Treasury for the European Banking Union? Slides, MPI for Research on Collective Goods.  Google Scholar
  37. Holtz-Eakin, D./Bosch, D./Gitis, B./Goldbeck, D./Rossetti, P. (2019): The Green New Deal: Scope, Scale, and Implications. Available at: www.americanactionforum.org/print/?url=https://www.americanactionforum.org/research/the-green-new-deal-scope-scale-and-implications (Accessed on 28 January 2022).  Google Scholar
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  39. IMF (2021): Sovereign Debt Investor Base for Advanced Economies. Version dated 1 November 2021.  Google Scholar
  40. Juncker, J.-C./Tusk, D./Dijsselbloem, J./Draghi, M/Schulz, M. (2015): Completing Europe’s Economic and Monetary Union, European Commission, available at: https://ec.europa.eu/info/sites/default/files/5-presidents-report_en.pdf (Accessed on 22 July 2022).  Google Scholar
  41. Kelton (née Bell), S. (2000): Do Taxes and Bonds Finance Government Spending? Journal of Economic Issues, 34(3), 603–620.  Google Scholar
  42. Kelton, S. (2020): The Deficit Myth. Modern Monetary Theory and How to Build a Better Economy, John Murray, London.  Google Scholar
  43. Leaman, J. (2022): Einige kritische Reflektionen über die Modern Monetary Theory. Berliner Debatte Initial, 33(2), 93–104.  Google Scholar
  44. Leeper, E. M./Yun, T. (2006): Monetary-Fiscal Policy Interactions and the Price Level: Background and Beyond. International Tax and Public Finance, 13, 373–409.  Google Scholar
  45. Leiner-Killinger, N./Nerlich, C. (2019): Fiscal Rules in the Euro Area and Lessons from Other Monetary Unions. ECB Economic Bulletin, Issue 3/2019.  Google Scholar
  46. Lerner, A. P. (1943): Functional Finance and the Federal Debt. Social Research, 10(1), 38–51.  Google Scholar
  47. Losse, B. (2022): Ökonom Issing warnt vor dem Hype um die „Modern Monetary Theory“, Wirtschaftswoche Online, available at: www.wiwo.de/politik/ausland/alternative-geldpolitik-mmt-oekonom-issing-warnt-vor-dem-hype-um-die-modern-monetary-theory/26290998.html (Accessed on 21 November 2022).  Google Scholar
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  49. Mosler, W. (1997): Full Employment and Price Stability. Journal of Post Keynesian Economics, 20(2), 167–182.  Google Scholar
  50. Negishi, T. (1979): Microeconomic Foundations of Keynesian Macroeconomics. North-Holland, Amsterdam, New York, Oxford.  Google Scholar
  51. Neyer, U. (2019): The Independence of the European Central Bank. Credit and Capital Markets, 52(1), 35–68.  Google Scholar
  52. Palley, T. (2013): Financialization: The Economics of Finance Capital Domination, Macmillan Palgrave, New York.  Google Scholar
  53. Papadia, F. (2014): Lending of Last Resort? A European Perspective. In: Bank for International Settlements (BIS) (ed.), Re-thinking the Lender of Last Resort. BIS Papers 79, 93–96.  Google Scholar
  54. Prinz, A./Beck, H. (2021): Modern Monetary Theory: A Solid Theoretical Foundation of Economic Policy? Atlantic Economic Journal, 49 (2), 173–186.  Google Scholar
  55. Rohwer, G./Behr, A. (2021): Financial Capital. Data and Models. UVK Verlag, Munich.  Google Scholar
  56. Sawicky, M. (2019): There Are Limits to Government Spending, But We Haven’t Reached Them Yet. In These Times. Available at: https://inthesetimes.com/article/paygo-modern-monetary-theory-pelosi-keynes (Accessed on 21 November 2022).  Google Scholar
  57. Schlotmann, O. (2021): Is Now Time for Modern Monetary Theory or Permanent Monetary Finance? Credit and Capital Markets, 54(1), 17–36.  Google Scholar
  58. Uhlig, H. (2013): Sovereign Default Risk and Banks in a Monetary Union. German Economic Review, 15(1), 23–41.  Google Scholar
  59. Acharya, V./Pierette, D./Steffen, S. (2021): Lender of Last Resort, Buyer of Last Resort, and a Fear of Fire Sales in the Sovereign Bond Market. Financial Markets, Institutions & Instruments, 30, 87–112.  Google Scholar
  60. Åslund, A. (2012): Why a Breakup of the Euro Area Must be Avoided: Lessons from Previous Breakups. Peterson Institute for International Economics, Policy Brief No. PB 12–20, August 2018.  Google Scholar
  61. Balls, E./Howat, J./Stansbury, A. (2018): Central Bank Independence Revisited: After the Financial Crisis, What Should a Model Central Bank Look Like? Mossavar-Rahmani Center for Business & Government Associate Working Paper Series No. 87, Harvard Kennedy School of Government.  Google Scholar
  62. Beck, H./Prinz, A. (2019): Wie revolutionär ist die Modern Monetary Theory? Wirtschaftsdienst, 99(6), 415–420.  Google Scholar
  63. Beck, H./Prinz, A. (2022): Gefahr für unser Geld? Die neuen Propheten des Geldes und die Zukunft unseres Währungssystems, Vahlen, Munich.  Google Scholar
  64. Bibow, J. (2015): Making the Euro Viable: The Euro Treasury Plan. Levy Economics Institute of Bard College, Working Paper No. 842.  Google Scholar
  65. Bonefeld, W. (2018): Stateless Money and State Power: Europe as Ordoliberal Ordnungsgefüge. History of Economic Thought and Policy, 2018 (1), 5–26.  Google Scholar
  66. Bordo, M. D./Jonung, L./Markiewicz, A. (2013): A Fiscal Union for the Euro: Some Lessons from History. CESifo Economic Studies, 59(3), 449–488.  Google Scholar
  67. Brunnermeier, M. (2021): Die resiliente Gesellschaft, Aufbau Verlag, Berlin.  Google Scholar
  68. Chari, V. V./Kehoe, P. J. (2007): On the Need for Fiscal Constraints in a Monetary Union. Journal of Monetary Economics, 54, 2399–2408.  Google Scholar
  69. Chari, V. V./Kehoe, P. J. (2008): Time Inconsistency and Free-Riding in a Monetary Union. Journal of Money, Credit and Banking, 40(7), 1329–1355.  Google Scholar
  70. Cochrane, J. (2022): Inflation Past, Present and Future: Fiscal Shocks, Fed Responses, and Fiscal Limits. NBER Working Paper 30096.  Google Scholar
  71. Cooper, R./Nikolov, K. (2018): Government Debt and Banking Fragility: The Spreading of Strategic Uncertainty. European Central Bank Working Paper Series 2195.  Google Scholar
  72. De Haan, J. (2019): Some Reflections on the Political Economy of Monetary Policy. Review of Economics, 70(3), 213–228.  Google Scholar
  73. De Jong, J. F. M./Gilbert, N. D. (2020): Fiscal Discipline in EMU? Testing the Effectiveness of the Excessive Deficit Procedure. European Journal of Political Economy, 61, 101833.  Google Scholar
  74. Draghi, M. (2012): Rede vom 26.07.2012. Available at: www.ecb.europa.eu/press/key/date/2012/html/sp120726.en.html.  Google Scholar
  75. Dröge, S. (2022): Der europäische Green Deal. Aus Politik und Zeitgeschichte, 72(3–4), 24–30.  Google Scholar
  76. Ehnts, D. (2022): Modern Monetary Theory. Eine Einführung. Springer, Heidelberg.  Google Scholar
  77. Ehnts, D./Hoefgen, M. (2022): Was ist Modern Monetary Theory? Perspektiven der Wirtschaftspolitik, 23(2), 108–119.  Google Scholar
  78. Ehnts, D./Paetz, M. (2019): Die Modern Monetary Theory: Staatsschulden als Steuergutschriften. Vierteljahreshefte zur Wirtschaftsforschung, 88, 77–90.  Google Scholar
  79. Epstein, G. A. (2019): What’s Wrong with Modern Money Theory? A Policy Critique. Cham, Switzerland: Palgrave Macmillan.  Google Scholar
  80. Epstein, G. A. (2020): The Empirical and Institutional Limits of Modern Money Theory. Review of Radical Political Economics, 52(4), 772–780.  Google Scholar
  81. European Central Bank (ECB) (2019): What is a Lender of Last Resort? Available at: www.ecb.europa.eu/ecb/educational/explainers/tell-me-more/html/what-is-a-lender-of-last-resort.en.html (Accessed on 22 July 2022).  Google Scholar
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  83. European Central Bank (ECB) (2022): The Transmission Protection Instrument. Available at: www.ecb.europa.eu/press/pr/date/2022/html/ecb.pr220721~973e6e7273.en.html (Accessed on 28 July 2022).  Google Scholar
  84. European Commission (2019): Deepening the EU’s Economic Monetary Union: Taking Stock Four Years After the Five Presidents’ Report. Communication from the Commission to the European Parliament, the European Council, the Council and the European Central Bank. Available at: https://commission.europa.eu/documents_en?f%5B0%5D=document_title%3Afive%20presidents%20report (Accessed on 20 December 2022).  Google Scholar
  85. Fahri, E./Tirole, J. (2018): Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops. Review of Economic Studies, 85(3), 1781–1823.  Google Scholar
  86. Forstater, M. (2010): Functional Finance and Full Employment: Lessons from Lerner for Today. In: Nell, E. J./Forstater, M. (eds.), Reinventing Functional Finance. Edward Elgar, 160–170.  Google Scholar
  87. Freixas, X./Rochet, J.-C./Parigi, B. M. (2004): The Lender of Last Resort: A Twenty-First Century Approach. Journal of the European Economic Association, 2(6), 1085–1115.  Google Scholar
  88. Friedman, M. (1970): The Counter-Revolution in Monetary Theory. Wincott Memorial Lecture, Institute of Economic Affairs, Occasional paper 33.  Google Scholar
  89. Galvin, R./Healy, N. (2020): The Green New Deal in the United States: What it is and How to Pay for it. Energy Research and Social Science, 67, 101529.  Google Scholar
  90. Hansen, P. H. (2014): From Finance Capitalism to Financialization: A Cultural and Narrative Perspective on 150 Years of Financial History. Enterprise & Society, 15(4), 605–642.  Google Scholar
  91. Havlik, A./Heinemann, F. (2021): Sliding Down the Slippery Slope? Trends in the Rules and Country Allocations of the Eurosystem’s PSPP and PEPP. Credit and Capital Markets, 54(2), 173–197.  Google Scholar
  92. Heinemann, F./Kemper, J. (2021): The ECB Under the Threat of Fiscal Dominance – The Individual Central Banker Dimension. The Economists’ Voice, 18(1), 5–30.  Google Scholar
  93. Heise, A. (2022): Modern Monetary Theory. Der keynesianische Stein der Weisen oder Voodoo-Ökonomik. Berliner Debatte Initial, 33(2), 79–92.  Google Scholar
  94. Hellwig, M. (2017): A Treasury for the European Banking Union? Slides, MPI for Research on Collective Goods.  Google Scholar
  95. Holtz-Eakin, D./Bosch, D./Gitis, B./Goldbeck, D./Rossetti, P. (2019): The Green New Deal: Scope, Scale, and Implications. Available at: www.americanactionforum.org/print/?url=https://www.americanactionforum.org/research/the-green-new-deal-scope-scale-and-implications (Accessed on 28 January 2022).  Google Scholar
  96. Horst, M./Neyer, U. (2019): The Impact of Quantitative Easing on Bank Loan Supply and Monetary Policy Implementation in the Euro Area. Review of Economics, 70(3), 229–265.  Google Scholar
  97. IMF (2021): Sovereign Debt Investor Base for Advanced Economies. Version dated 1 November 2021.  Google Scholar
  98. Juncker, J.-C./Tusk, D./Dijsselbloem, J./Draghi, M/Schulz, M. (2015): Completing Europe’s Economic and Monetary Union, European Commission, available at: https://ec.europa.eu/info/sites/default/files/5-presidents-report_en.pdf (Accessed on 22 July 2022).  Google Scholar
  99. Kelton (née Bell), S. (2000): Do Taxes and Bonds Finance Government Spending? Journal of Economic Issues, 34(3), 603–620.  Google Scholar
  100. Kelton, S. (2020): The Deficit Myth. Modern Monetary Theory and How to Build a Better Economy, John Murray, London.  Google Scholar
  101. Leaman, J. (2022): Einige kritische Reflektionen über die Modern Monetary Theory. Berliner Debatte Initial, 33(2), 93–104.  Google Scholar
  102. Leeper, E. M./Yun, T. (2006): Monetary-Fiscal Policy Interactions and the Price Level: Background and Beyond. International Tax and Public Finance, 13, 373–409.  Google Scholar
  103. Leiner-Killinger, N./Nerlich, C. (2019): Fiscal Rules in the Euro Area and Lessons from Other Monetary Unions. ECB Economic Bulletin, Issue 3/2019.  Google Scholar
  104. Lerner, A. P. (1943): Functional Finance and the Federal Debt. Social Research, 10(1), 38–51.  Google Scholar
  105. Losse, B. (2022): Ökonom Issing warnt vor dem Hype um die „Modern Monetary Theory“, Wirtschaftswoche Online, available at: www.wiwo.de/politik/ausland/alternative-geldpolitik-mmt-oekonom-issing-warnt-vor-dem-hype-um-die-modern-monetary-theory/26290998.html (Accessed on 21 November 2022).  Google Scholar
  106. Mehring, P. (2010): Functional Finance, Past and Present. In: Nell, E. J./Forstater, M. (eds.), Reinventing Functional Finance. Edward Elgar, 83–88.  Google Scholar
  107. Mosler, W. (1997): Full Employment and Price Stability. Journal of Post Keynesian Economics, 20(2), 167–182.  Google Scholar
  108. Negishi, T. (1979): Microeconomic Foundations of Keynesian Macroeconomics. North-Holland, Amsterdam, New York, Oxford.  Google Scholar
  109. Neyer, U. (2019): The Independence of the European Central Bank. Credit and Capital Markets, 52(1), 35–68.  Google Scholar
  110. Palley, T. (2013): Financialization: The Economics of Finance Capital Domination, Macmillan Palgrave, New York.  Google Scholar
  111. Papadia, F. (2014): Lending of Last Resort? A European Perspective. In: Bank for International Settlements (BIS) (ed.), Re-thinking the Lender of Last Resort. BIS Papers 79, 93–96.  Google Scholar
  112. Prinz, A./Beck, H. (2021): Modern Monetary Theory: A Solid Theoretical Foundation of Economic Policy? Atlantic Economic Journal, 49 (2), 173–186.  Google Scholar
  113. Rohwer, G./Behr, A. (2021): Financial Capital. Data and Models. UVK Verlag, Munich.  Google Scholar
  114. Sawicky, M. (2019): There Are Limits to Government Spending, But We Haven’t Reached Them Yet. In These Times. Available at: https://inthesetimes.com/article/paygo-modern-monetary-theory-pelosi-keynes (Accessed on 21 November 2022).  Google Scholar
  115. Schlotmann, O. (2021): Is Now Time for Modern Monetary Theory or Permanent Monetary Finance? Credit and Capital Markets, 54(1), 17–36.  Google Scholar
  116. Uhlig, H. (2013): Sovereign Default Risk and Banks in a Monetary Union. German Economic Review, 15(1), 23–41.  Google Scholar
  117. Acharya, V./Pierette, D./Steffen, S. (2021): Lender of Last Resort, Buyer of Last Resort, and a Fear of Fire Sales in the Sovereign Bond Market. Financial Markets, Institutions & Instruments, 30, 87–112.  Google Scholar
  118. Åslund, A. (2012): Why a Breakup of the Euro Area Must be Avoided: Lessons from Previous Breakups. Peterson Institute for International Economics, Policy Brief No. PB 12–20, August 2018.  Google Scholar
  119. Balls, E./Howat, J./Stansbury, A. (2018): Central Bank Independence Revisited: After the Financial Crisis, What Should a Model Central Bank Look Like? Mossavar-Rahmani Center for Business & Government Associate Working Paper Series No. 87, Harvard Kennedy School of Government.  Google Scholar
  120. Beck, H./Prinz, A. (2019): Wie revolutionär ist die Modern Monetary Theory? Wirtschaftsdienst, 99(6), 415–420.  Google Scholar
  121. Beck, H./Prinz, A. (2022): Gefahr für unser Geld? Die neuen Propheten des Geldes und die Zukunft unseres Währungssystems, Vahlen, Munich.  Google Scholar
  122. Bibow, J. (2015): Making the Euro Viable: The Euro Treasury Plan. Levy Economics Institute of Bard College, Working Paper No. 842.  Google Scholar
  123. Bonefeld, W. (2018): Stateless Money and State Power: Europe as Ordoliberal Ordnungsgefüge. History of Economic Thought and Policy, 2018 (1), 5–26.  Google Scholar
  124. Bordo, M. D./Jonung, L./Markiewicz, A. (2013): A Fiscal Union for the Euro: Some Lessons from History. CESifo Economic Studies, 59(3), 449–488.  Google Scholar
  125. Brunnermeier, M. (2021): Die resiliente Gesellschaft, Aufbau Verlag, Berlin.  Google Scholar
  126. Chari, V. V./Kehoe, P. J. (2007): On the Need for Fiscal Constraints in a Monetary Union. Journal of Monetary Economics, 54, 2399–2408.  Google Scholar
  127. Chari, V. V./Kehoe, P. J. (2008): Time Inconsistency and Free-Riding in a Monetary Union. Journal of Money, Credit and Banking, 40(7), 1329–1355.  Google Scholar
  128. Cochrane, J. (2022): Inflation Past, Present and Future: Fiscal Shocks, Fed Responses, and Fiscal Limits. NBER Working Paper 30096.  Google Scholar
  129. Cooper, R./Nikolov, K. (2018): Government Debt and Banking Fragility: The Spreading of Strategic Uncertainty. European Central Bank Working Paper Series 2195.  Google Scholar
  130. De Haan, J. (2019): Some Reflections on the Political Economy of Monetary Policy. Review of Economics, 70(3), 213–228.  Google Scholar
  131. De Jong, J. F. M./Gilbert, N. D. (2020): Fiscal Discipline in EMU? Testing the Effectiveness of the Excessive Deficit Procedure. European Journal of Political Economy, 61, 101833.  Google Scholar
  132. Draghi, M. (2012): Rede vom 26.07.2012. Available at: www.ecb.europa.eu/press/key/date/2012/html/sp120726.en.html.  Google Scholar
  133. Dröge, S. (2022): Der europäische Green Deal. Aus Politik und Zeitgeschichte, 72(3–4), 24–30.  Google Scholar
  134. Ehnts, D. (2022): Modern Monetary Theory. Eine Einführung. Springer, Heidelberg.  Google Scholar
  135. Ehnts, D./Hoefgen, M. (2022): Was ist Modern Monetary Theory? Perspektiven der Wirtschaftspolitik, 23(2), 108–119.  Google Scholar
  136. Ehnts, D./Paetz, M. (2019): Die Modern Monetary Theory: Staatsschulden als Steuergutschriften. Vierteljahreshefte zur Wirtschaftsforschung, 88, 77–90.  Google Scholar
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Abstract

In this paper, Modern Monetary Theory (MMT) is confronted with the peculiarities of the institutional setting of the European Monetary Union (EMU) and the monetary policy of the European Central Bank (ECB). Since the financial and euro crises of 2008, monetary policy has changed drastically both in the eurozone and worldwide. With a Quantitative Easing (QE) policy, a new era of monetary policy began that made money available in almost boundless quantities and free of charge. This fits very well with ideas of MMT as it proposes a unification of fiscal and monetary policy in which the government finances its expenditures exclusively with newly created money. Taxes are only used for redistributing income and controlling inflation. Although MMT requires that the government has its own currency, it has been proposed as a policy concept for the EMU. The contribution of this paper to the literature is twofold. Firstly, it is demonstrated that the EMU’s institutional setting is not suitable for MMT as the member countries’ fiscal sovereignty contradicts the employment of taxation to control inflation. Secondly, MMT’s inappropriateness for dealing with banking fragility and financial stability in the EMU is shown. Finally, it is argued that the existence of fiscal dominance in monetary policy is not sufficient for MMT’s concept.

Table of Contents

Section Title Page Action Price
Aloys Prinz / Hanno Beck: Modern Monetary Theory, Fiscal Dominance and the European Central Bank 431
Abstract 431
I. Introduction 431
II. What is MMT and what is its Aim? 432
III. Peculiarities of the Eurozone 437
IV. ECB, National Central Banks and Commercial Banks 439
V. The ECB, Public Debt and QE 441
VI. Is MMT Relevant in/for Monetary Policy in the Eurozone? 443
VII. Conclusion 452
References 453

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