With the introduction of non-standard measures in addition to the traditional interest rate tool, things became much more complicated to understand, communicate and assess. As the central bank intervenes in several dysfunctional markets and expands its balance sheet, the public may become concerned about its exact motivations. Ultimately, this may hurt the central bank’s credibility and endanger the pursuit of its mandate.
But in the end, the current crisis is, to a large degree, a crisis of confidence. And if alreadyannounced consolidation and reforms were to be delayed, would people not lose even more confidence in policymakers’ ability to get to the root of the crisis? We can only win back confidence if we bring down excessive deficits and boost competitiveness.