This has raised expectations on monetary policy to do something to stabilise the economy and the financial markets. And indeed, central banks across the world have introduced unconventional measures, in order to fulfil their mandates even under these unusual circumstances. Some of these measures have come in for criticism, because they encroach on the territory of fiscal policy. Thus, there is currently tension between monetary and fiscal policy in a number of countries. How does this tension come about? Which factors might exacerbate or mitigate it? And what is the current situation in Switzerland? To address these questions, I will first review the goals and the division of responsibilities in these two areas of economic policy. In a second step, using the recent crisis as an example, I will highlight the importance of rules and a culture of stability for an economic policy that is both sustainable and tension-free. I will finish by describing the current situation in Switzerland. Fiscal and monetary policy goals and complementarity Must there necessarily be tension between monetary and fiscal policy? This might be true if these two areas of economic policy were pursuing conflicting goals. However, if we look at the objectives of monetary and fiscal policy, we can see that they are very similar (cf. chart 1). Today, in most advanced economies, monetary policy is conducted by independent central banks, with the primary objective being to ensure price stability while taking due account of economic developments.
If fiscal policy is no longer able to act, there is a danger that politicians, economic agents and the public will expect monetary policy to come up with a solution for every problem. In Switzerland, where good rules and a strong culture of stability exist, there is currently no tension. But even if our country is in a relatively good position, this is no reason to rest upon our laurels. Stability-oriented fiscal and monetary policies must be constantly maintained, to ensure that they are sufficiently robust when the next challenge presents itself. One of the greatest challenges for fiscal policy is demographic changes, which will place a heavy burden on public finances in the future. Calculations show clearly that, if policy is not changed, age-related costs will rise sharply. It will not be possible to solve these problems using only fiscal rules such as the debt brake. Profound structural reforms to social security arrangements are needed. Central banks, too, face major challenges. In the last few years, central banks across the world have broken new ground. They have cut interest rates practically to zero, supplied the financial system with generous amounts of liquidity and introduced unconventional monetary policy measures. These measures carry a number of risks, of which inflation is the most frequently cited. Allow me to conclude my presentation with a few words on that subject. 16  Cf. Jordan (2012b). BIS central bankers’ speeches  7  There is no sign of inflation for the short or medium term.