Both monetary and fiscal expansions have been needed during the past recent period in the euro area to sustain demand and inflation, mitigate the costs of the pandemic crisis and ensure a robust recovery. Conflicts of objectives between the two policies could, however, arise again in the future, in particular as a result of the ongoing accumulation of public debts and the large expansion of the Eurosystem’s balance sheet. Building on the work done during the recent ECB strategy review, this blog recalls the recent monetary and fiscal actions and presents some of the trade-offs for the post-pandemic period.
Chart 1. Public debt to GDP ratio in the euro area and for its largest countries (left hand side axis) and evolution of the Eurosystem balance sheet over GDP (right hand size axis) Source: Eurostat, National accounts, Eurosystem data. Authors’ calculation.