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Economists find ECB stimulus shrank eurozone inequality

© AFP/File | The ECB's stimulus helped lower income equality as well as pull the eurozone out of the economic doldrums, a study found.

Ultra-low interest rates and massive bond-buying by the European Central Bank boosted incomes for the poorest eurozone households more than the richest and eased inequality, economists argued in a study released Wednesday.

"Expansionary monetary policy, both standard and non-standard, tends to reduce income and wealth inequality," the experts from the ECB and Princeton University found after studying data from the four largest eurozone countries -- Germany, France, Spain and Italy.

Although not an official ECB position, the economists' conclusions are certain to feed into a fiery eurozone-wide debate over the impact of the central bank's measures on ordinary households.

Critics have charged that low interest rates rob ordinary people of income on their nest eggs, or that bond-buying favours the wealthy by driving up the value of financial assets.

But the bank's defenders say its policy palette has succeeded in boosting growth and avoiding deflation, making the eurozone as a whole better off.

In the years after the 2008 financial crisis, the ECB first looked to the "standard" policy of lower interest rates, aiming to ease access to credit and in turn stoke economic growth and inflation.

When expansion and price growth remained sluggish, policymakers opted in 2015 for so-called "quantitative easing" (QE) -- printing money to buy tens of billions of euros per month of government and corporate bonds.

Mario Draghi and other ECB leaders believe QE has succeeded in shunting money into productive parts of the economy and boosting growth and inflation, claiming the bank has helped create 7.5 million jobs since 2013.

- Wealth inequality -

In Wednesday's paper, the ECB economists found that lower interest on savers' cash piles was more than made up for by the reduction in unemployment and higher wages they enjoyed.

On top of low rates, QE has reduced income inequality by slashing unemployment among the poorest households, the economists said.

"Monetary policy in recent years benefited most households and did not contribute to an increase in wealth, income or consumption inequality," they concluded.

Stanislas Jourdan of Positive Money Europe, a Brussels organisation that campaigns for more progressive monetary policy, charged that "the study underestimates the impact on wealth inequality" of the ECB's QE programme.

The paper says bond-buying increased the net wealth of the least well-off fifth of the population by 2.5 percent, compared with just 1.0 percent for the richest fifth.

But that figure was "meaningless" in real terms, Jourdan said, as such an increase would mean a few tens of euros more for the poorest but several thousands for the richest.

"Even more interesting would be to have counterfactual studies" of different ways of pumping money into the economy such as direct cash transfers to households, which Jourdan suggested could be designed to be more equitable.


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