That said, both theory and evidence teach us that over longer periods of time, and “other things being equal”, imprudent fiscal policies and a stability-oriented monetary policy will become incompatible and will eventually clash. Such a constellation of policies - given the commitment of monetary policy to price stability - will have adverse effects on growth. 3.
Monetary policy in a heterogeneous economic area  The challenge posed by fiscal developments in the euro area is - hopefully - of a transitory nature. Other challenges may be of a more permanent nature. I am referring to the challenge of defining a monetary policy for a single currency area, in which regional inflation rates and growth dynamics continue to exhibit certain divergences.