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.