After Japan, modern monetary theory is now conquering the euro zone

First , we recap the tenets of m odern m onetary t heory (MMT): fiscal policy is expansionary in order to maintain full employment, and monetary policy is also expansionary, as fiscal deficits are monetised to prevent interest rates from rising. With MMT, no attention is paid to the possible drawbacks of continuous, simultaneous rises in the public debt and in the money supply or of the very low interest rates: the irreversibility of this policy, the weakening of banks, the inefficient use of savings, the risk of capital outflows and asset price bubbles. Japan has been practising MMT since its banking crisis in the late 1990s: Japan’s public debt and the size of the Bank of Japan’s balance sheet have expanded rapidly and interest rates are zero. And MMT is now conquering the euro zone, as evidenced by recent statements by the ECB, the recent fiscal choices of France and Italy and the fact that if the euro zone were to slide into recession, the only solution would be a highly expansionary fiscal policy with fiscal deficit monetisation by the ECB.