Both parents and monetary policy makers understand the need to be consistent if credibility is to be maintained. We’ve learned that the hard way. The same rules of life apply to fiscal policy. Credibility suffers if you do not do what you promised to do. Moreover, if these rules are not adhered to, problems could also develop in other areas of common European policy.
To attenuate time inconsistency, central banks need to be independent but at the same time accountable and transparent. These two requisites are mutually self-reinforcing: a well-defined strategy implies greater transparency and accountability, and viceversa. The Outright Monetary Transactions announced by the ECB Governing Council last September are an excellent case in point.