Is there then no middle ground for policymakers between the inflexibility of ironclad rules and the instability of unfettered discretion? My thesis today is that there is such a middle ground - an approach that I will refer to as constrained discretion - and that it is fast becoming the standard approach to 4 monetary policy around the world, including in the United States.
Policymakers responded in three ways: reform of European economic governance; ambitious programmes of fiscal consolidation and structural reform in member countries; and decisive actions by the Eurosystem to stabilize financial markets and preserve the monetary policy transmission mechanism. 7. First, the reform of the treaties and of the Stability and Growth Pact reflects recognition of the shortcomings of European governance.