Over relatively short periods, fiscal policies that are incompatible with a stability-oriented monetary policy may not give rise to tensions in credit markets, depending also on the influence of other determinants of economic activity and inflation.
Over the longer term, however, persistently high budget deficits and rising debt-to-GDP ratios will come into conflict with the ECB’s monetary policy, which is committed to the objective of price stability. Unfortunately, fiscal developments in the euro area continue to be, on average, far from satisfactory and, in several Member States, disappointing.