Could the coronavirus crisis trigger a euro-zone crisis?
The mechanism that would trigger a crisis in the euro zone is quite clear (it is the same mechanism as in 2010): the loss of growth leads to an increase in fiscal deficits, and fiscal solvency is lost in some countries, due both to lower growth and an increased fiscal deficit. This may indeed happen. How can it be prevented ? The solution is well known: helicopter money (which is the same thing as Modern Monetary Theory), which is equivalent, as we know, to: An increase in the fiscal deficit (which will be the case in the euro zone); Combined with an irreversible increase in the size of quantitative easing. The difficulty may be, however, that quantitative easing leads the ECB to buy government bonds from the entire euro zone, while the budgetary solvency problem arises only in a few countries. The solution is then the OMT (Outright Monetary Transactions), with which the ECB can specifically buy a country’s debt if it is subject to a European programme and receives a loan from the ESM.