Moreover, fiscal policy has to be geared towards maintaining domestic demand in line with sustainable growth and price stability. The challenge of intra-euro area imbalances underscores the importance of countries keeping nominal price and cost developments in line with those of the euro area as a whole.
Otherwise, losses in competitiveness will ensue which cannot be offset by the exchange rate or the single monetary policy, which by definition can only be geared towards price stability in the euro area as a whole. This also underscores the importance of avoiding unsustainable current account imbalances, which imply vulnerabilities such as excessive credit growth or dependence on external financing.