The new economic governance framework: implications for monetary policy
Abstract
This paper studies the implications for the European Central Bank (ECB) of the new EU fiscal framework, focusing on five aspects where monetary and fiscal policies intersect: (1) fiscal dominance over monetary policy; (2) fiscal drag created by the new framework; (3) moral hazard created by very low interest rates; (4) the effectiveness of the ECB’s Transmission Protection Instrument (TPI), and (5) the impact of the new framework on green public investment. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 4 December 2024.
Related content
A sober look at the case for common European Union debt
More EU debt will not lower public borrowing costs or deepen markets without fiscal-union features, permanent issuance and credible fiscal backstops
Europe’s challenges: what is new?
Ragnar Nurkse, Bretton Woods and the international economic order
Launch of the Bruegel-published book "Ragnar Nurkse and the Making of the Bretton Woods Paradigm"
What is driving the global rise in long-term interest rates?
Rising bond yields are likely down to stronger investment demand, more supply of long-duration debt and less absorption by yield-insensitive investors