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Monetary and fiscal policy interaction in times of Next Generation EU

Could Next Generation EU enable a better coordination of monetary and fiscal policy?


Since the beginning of the COVID-19 crisis, fiscal and monetary policy have been well coordinated to support the economy. In particular, the ECB's asset purchases, whose effectiveness have been questioned in recent years, seem to have finally found a strong transmission channel by enabling substantially accommodating fiscal policy in the euro area.

At a time when monetary policy has been constrained by the effective lower bound for almost a decade and had some difficulties to reach its target, coordination is essential. This has fortunately been the case in 2020, but it may be more difficult in the future with one central bank and 19 Treasuries. Could Next Generation EU (the ability to borrow and spend at the central level) help in that regard and provide a template for better coordination between monetary and fiscal policy in the euro area in the future?

This was an invitation-only event open only to Bruegel members and a small number of selected invitees.