Heikki Oksanen, 20 July 2020

One of the many reasons for slow progress with reforming the euro has been a lack of understanding of the links between the fiscal and monetary domains. This column argues that the Covid-19 shock necessitates a significant extension of the time horizon for fiscal policy.  Sound public finances means long-term sustainability of government finances, which is required for refunding public debt at acceptable interest rates. Bonds issued by the solvent governments are needed for the operations of the Eurosystem in setting the monetary stance and in acting as the lender of last resort for euro area governments, which is necessary for preventing liquidity shortages from developing into a general financial crisis.

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