The Law and Economics of Quantitative Easing

Abstract

In this paper we argue that, in substance, the Quantitative Easing (QE) programmes introduced by central banks around the world amount to monetary financing of government deficits. As such, these programmes are unlawful under the Treaty on the Functioning of the European Union (TFEU). However, we recognise that as a matter of practical politics, the CJEU would be unlikely to strike down a QE programme, were the ECB to launch one. Nonetheless, given our analysis, and given the distributive consequences that QE has had in the UK and US, we consider that the implementation of such a policy in the EU requires far greater public debate than is likely. The continued absence of debate is likely only to reinforce the view that central bank decision-making is outside the rule of law.

Keywords: Quantitative Easing, Monetary Policy, Financial Crisis, Central Banks, European Law

JEL Classification: E51, E52, E58