Playing with fire: the unintended consequences of monetary financing


  • Leef H. Dierks Lübeck University of Applied Sciences



To the extent that the ECB’s more recent monetary policies, among them cutting its main refinancing rate to a historical low of 0% in March 2016, failed to deliver the hoped for results in the wake of the financial crisis and the euro area started facing a “Japanifica-tion” (Dierks, 2015), unconventional monetary policy measures were adopted. These included unprecedented asset purchases, which caused the Eurosystem’s total assets to soar to €4.3trn (about 35% of Euro area GDP) as per mid-October 2017, the latest date for which data were available (fig. 1).

Originally, these unconventional policy measures were designed to stimulate economic growth, particularly in the Medi-terranean Rim economies, and to spur inflation; “the (ECB’s) Gov-erning Council is more actively steering the size of the ECB’s balance sheet towards much higher levels in order to avoid the risks of too prolonged a period of low inflation in a situation where policy rates have reached their effective lower bound“ (ECB, 2014). In light of the most recent inflation data (fig. 2), this policy appears


barro, R. J. (1974): “Are Government Bonds Net Wealth?”, Journal of Political Economy, Vol. n° 6, pp. 1095-1117.

bateMarCo, R. J. (1994): Austrian Business Cycle Theory, in Peter J. Boettke, P. J. (ed.), The Elgar Companion to Austrian Economics, Aldershot, England: Edward Elgar.

bis (2016): BIS Quarterly Review, September 2016, Basel.

dierks, L. (2015): “Droht der Europäischen Währungsunion die „Japanisierung“?”, WiSt – Wirtschaftswissenschaftliches Studium, n° 1, pp. 30-36.

— (2016): “Geldpolitische Experimentierlust: Helikoptergeld schadet der Euro-Zone”, Neue Zürcher Zeitung, September 1, 2016.

— (2017): “Inflation in der Euro-Zone”, wisu – das wirtschaftsstudium, n° 2, pp. 220-226.

eCb (2014): “Assessing the new phase of unconventional monetary policy at the ECB”,

— (2017): “Bond scarcity and the ECB’s asset purchase programme”,

european CoMMission (2017): Winter 2017 Economic Forecast,

FinanCial tiMes (2017): “ECB reveals QE bond scarcity fears”,

saravelos, G., behon, D. and winkler, R. (2016): Helicopters 101: your guide to monetary financing, Deutsche Bank Research.

teMpleMan, J. H. (2010): “Austrian business cycle theory and the global financial crisis: confessions of a mainstream economist”, Quarterly Journal of Austrian Economics, Vol. 13, n° 1, pp. 3-15.

turner, A. (2015): The Case for Monetary Finance – An Essentially Political Issue, 16th Jacques Polak Annual Research Conference, International Monetary Fund Washington, DC.




How to Cite

Dierks, L. H. . (2017). Playing with fire: the unintended consequences of monetary financing. REVISTA PROCESOS DE MERCADO, 14(2), 247–257.