Saturday | 26 Sep 2020
CEPS Project

EMU reform and the ‘new normal’ for monetary policy: Challenges and perspectives.

Does a single monetary policy need a single fiscal counterpart?


The absence of a single fiscal policy in the euro area does not necessarily constitute a problem for the ECB. In a deep financial crisis poorly coordinated national fiscal policies are likely to be insufficient. But outside crisis periods spill-over effects of fiscal policy are likely to be small and of uncertain sign. Moreover, fiscal policy is always subject to policy errors and other shocks. With many different national policies, individual errors and shocks would tend to cancel out each other, at least partially, thus delivering a more stable policy in the aggregate, which should facilitate the task of the ECB to maintain price stability. EMU reform efforts should thus not aim at creating a unified fiscal policy. This document was provided by Policy Department A at the request of the Committee on Economic and Monetary Affairs.

This project was awarded under the Framework Service Contract for the provision of external expertise in the field of monetary and economic affairs (Monetary dialogues) (IP/A/ECONMD/FWC/2014-026/C6) with the European Parliament. The full list of CEPS’ Framework Contracts is available here.