As a result, given its primary objective of price stability, the ECB will be obliged to offset this expansion by implementing a restrictive monetary policy. In the end, the European economy will be confronted with higher fiscal deficits and higher interest rates, similar to the bad experiences of the seventies and early eighties.
Third, high and persistent fiscal imbalances indirectly fuel inflationary expectations, because they raise the issue of sustainability. Fourth, an additional reason for the establishment of a pact for stability and growth is the possible danger of “free rider” behaviour by individual Member States.