Some have been worried that fiscal dominance has taken hold when the central banks have used government bond purchases, both to stabilize the markets and to produce additional monetary stimulus with “Quantitative Easing” when the interest rate instrument has already been used to the maximum. The Extended Asset Purchase Programme of the ECB announced in the week before last is an example.
As to the euro area, there is no evidence of fiscal dominance. The acid test for fiscal dominance is: does monetary policy break its price stability objective for the sake of maintaining the solvency of the government sector. This is not the case. The price stability objective has not been and will not be abandoned.