In other words, the currency of that country will no longer be considered as a good store of value, either domestically or externally. None of the above constitutes a feasible scenario for the euro area, which is characterised by a unique combination of centralised monetary policy-making and largely decentralised, albeit closely coordinated, fiscal policy-making.
This one-monetary-policy-and-many- fiscalpolicies approach is at the heart of the institutional arrangement which governs the interactions between monetary and fiscal policies in the euro area. Importantly, the Treaty specifically excludes any “fiscal dominance of last resort”, due to the prohibition of monetary financing. So what are the implications of all this?