I will address each factor in turn. First, firms are continuing to benefit from the accommodative stance of monetary policy. Even with the recent increase by the FOMC in the target funds rate to 1.75 percent, short-term borrowing costs remain low.
Recent proposals 3/4  BIS central bankers' speeches  to focus the fiscal framework on a debt anchor complemented by an expenditure rule deserve further consideration.3 EMU also needs a central fiscal stabilisation mechanism to enhance countercyclical stabilisation during severe recessions. Past experience shows that the aggregate fiscal stance in the euro area is often suboptimal.