A government’s fiscal policies can deliver similar outcomes for short-term inflation and employment as to monetary policy. However, fiscal retrenchment occurring simultaneously with monetary expansion is akin to one foot on the brake, the other on the accelerator. At times this makes economic sense, but not all of the time.
He once said – I quote here from the laudatory statement on the occasion of Mr Juncker being awarded the Charlemagne Prize in 2006 – that “institutional life in Europe is a bit like life in the animal kingdom – a flea can drive a lion crazy, but there is no known example of a lion driving a flea crazy.