Despite a greater degree of coordination, the fiscal, economic and social policies of the participating countries will, for the present, remain a national responsibility. That is likewise true of government debt management with its significant repercussions for the capital markets.
Through its impact on cash flows and collateral values, monetary policy can affect borrowers’ net worth, which is inversely related to their external finance premium. Owing to the pro-cyclicality of net worth, the external finance premium is thus counter-cyclical and therefore magnifies the impact of changes in short-term rates on credit availability. This spills over into consumption and investment, and finally into economic growth.