Fiscal & Monetary Policy: An Impossible Coordination?

Although monetary and fiscal policy objectives are considered distinct, there is a strong interaction between their actions. The increase in key rates aimed at ensuring price stability affects the cost of public debt and therefore budget balances. It can even be counterproductive in the face of an inflationary supply shock: in this case, fiscal policy should be used. Macroeconomic policies must therefore be coordinated to provide optimal responses to shocks.

How, then, can we combine budgetary decisions that are the result of political choices with monetary decisions taken by central banks that are statutorily independent? A negotiation of the division of roles can call into question the credibility of monetary policy. But what would be the durability of an agreement setting this sharing? In the eurozone, coordination concerns 21 fiscal policies. In times of crisis, the EU has found emergency solutions, but can these one-off advances replace a specific budget for the area?