Most recently, we have all seen how the European Central Bank has had to show unusual accommodation in resolving the sovereign debt crisis in some European countries. Many fear that this is just the beginning of a trend whereby fiscal policies will once again start dictating monetary stances. 38. The history of fiscal dominance of monetary policy is quite interesting.
The eighty odd years since the Great Depression saw a famous rivalry between monetary and fiscal policy for influence. For at least three decades after the Great Depression, Keynes’ intellectual heritage ruled; governments borrowed as much as they wanted and at the price they wanted without worrying about the implications of debt build-up, and central banks had willy-nilly acquiesced in this profligacy. 39.