Given the growing strain on public finances that I spoke of a few minutes ago, there is a danger that monetary policy will also experience greater political pressure to safeguard the government’s solvency.
What I mean is that the central bank could be pressured into pursuing a laxer monetary policy, primarily one of low interest rates, to keep government financing costs as low as possible. In this way, an increase in the real debt burden would at least be curbed via higher inflation.