To ultimately empower fiscal policy as a transmission channel of monetary policy, the ECB needs to provide liquidity when risks of self-fulfilling price spirals threaten to undermine stability in the euro area as a whole. As was the case during the pandemic, this may require temporary flexibility in the use of instruments.
Being clear about this upfront reduces the emergence of destabilising dynamics in the first place and minimises the extent of interventions when they are needed. In such situations, risks of moral hazard should not condemn the central bank to a course of inaction. These risks should be governed by other institutions outside crisis times.