Still, I do not believe the crisis has shattered the consensus on what central banks should be pursuing – central banking has always been about the preservation of, to quote Charles Goodhart, “the three aspects of stability”, namely price stability, (external) currency stability and financial stability. Nor has the crisis brought about the sudden realisation that these aspects of stability do in fact condition each other – central bankers, maybe even more so emerging-market central bankers, have long been keenly aware that failure to ensure one kind of stability is bound to jeopardise the achievement of the others. What the crisis has indeed challenged is the widespread conviction that meeting one particular stability criterion,  BIS central bankers’ speeches  1  while necessary in order to achieve the others, is also a sufficient condition to do so – after all, maintaining price stability, while valuable in itself, has proved insufficient to ward off major financial or macroeconomic instability. As a matter of fact, Andrew Crockett claimed ever since 2003 that the “peace dividend” yielded by the successful war against inflation had not lived up to expectations and therefore the battlefront against financial instability should not be overlooked. Nevertheless, it is widely accepted that price stability should remain the overriding objective of a central bank and I do not see this approach changing in the future, at least in Europe.
If the importance of macro-prudential instruments was revealed by the global crisis and the forex interventions of central banks went back in fashion during the same period, there is a fact well known from the conventional economic wisdom, but highlighted once again by the crisis: the countercyclical stance of both monetary and fiscal policies is essential for ensuring a smooth trajectory of the economy. We all saw how unsustainable public finances and high levels of debt have impeded the effectiveness of a stability-oriented monetary policy. This was also the case of Romania, where the fiscal impulse was positive during the period of rapid growth before the financial crisis, contributing to the overheating of the economy and fuelling the imbalances accumulated in the economy. Moreover, the pro-cyclicality of the fiscal policy during the pre-crisis period exhausted the fiscal space needed to stimulate the economy in recession, leading to the need to reduce the budget deficit during the crisis (primarily due to financing constraints) and to perpetuating the pro-cyclicality of fiscal policy. As stated by Fritz Zurbrügg (2012), successful monetary policy is predicated on healthy fiscal policy, and vice versa, and to achieve stability and prosperity in the long term, fiscal and monetary policies must both focus on sustainability. In the past, the high fiscal deficit has resulted in the fiscal dominance of monetary policy with its inevitable monetisation of the government debt, but nowadays most central banks no longer directly finance government expenditure.