Conventional direction to unconventional measures: Using quantitative easing to shape eurozone fiscal capacity

Eight years after the outbreak of the crisis, the Eurozone (EZ) fiscal policy remains fragmented at the national level. This paper fills the structural gap between the monetary and fiscal dimensions of EZ economic policy by suggesting a ‘conventional’ direction to the unconventional Quantitative Easing (QE) policy of the European Central Bank (ECB). We propose an evolution for QE 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 purchases, focusing on buying European Investment Bank (EIB) bonds that, in turn, would be used to finance real investments through the Juncker Plan programme. The rationale of our proposal is legitimised by an overview of the gloomy macroeconomic conditions of the EZ, and the situation in ongoing policies. The mechanism is described in detail, with a discussion of both its strengths and possible limitations.