Both parents and monetary policy makers understand the need to be consistent if credibility is to be maintained. We’ve learned that the hard way. The same rules of life apply to fiscal policy. Credibility suffers if you do not do what you promised to do. Moreover, if these rules are not adhered to, problems could also develop in other areas of common European policy.
Enforcement mechanisms will lack credibility. In a sense, it is this risk of the loss of credibility that is most concerning about current developments in euro area fiscal policy. Everyone agrees that there can be no return to the large fiscal deficits of the 1970s. That simply crowded out private sector investment.