The ECB will monitor these developments very closely, as sound public finances are a fundamental prerequisite for a credible and effective monetary policy. IV. Fiscal and monetary policy in the euro area: need for tighter governance  Allow me to dwell a little bit more on the sovereign debt crises and the challenges it poses to monetary policy.
As mentioned earlier, the economic literature has long emphasized the intimate connection between fiscal and monetary policy. The relationship between monetary and fiscal authorities can be of two alternative types. The first is one of “dependence” – typically of the monetary authority on the fiscal authority. The second type is a relation of “mutual independence” with a well defined monetary policy mandate.