The only solution to prevent low growth and bubbles after the COVID crisis: Central bank money creation in exchange for an increase in corporate equity

We use the case of the euro zone as an example, but our analysis holds for a ny countr y . The economic policy implemented in response to the COVID crisis has two major problems: It is leading to a sharp increase in companies’ debt, which will jeopardise their capacity to invest after the crisis; It is leading to asset price bubbles due to the extent of money creation. The ECB has increased banks’ liquidity, enabl ing them to lend more to companies, and has bought bonds from investors, lead ing them to reinvest the money they receive in other asset classes. T he ECB could have avoided these two problems by creating money in exchange for subscriptions to corporate capital increases. Companies would have more equity and not more debt; the money would have bought new shares issued by companies and not existing debt.