Neither is it possible for anyone to say how soon after 2021 a downturn may occur. It could come soon after, or some years later. 4 Now 0.5–0.75 per cent is not a particularly high level for the repo rate, if one looks at it from an historical point of view. But on the other hand, history may not be as informative in this case as there has been a downward trend in global real interest rates in recent decades, as I just pointed out. It is therefore difficult to know what is currently a neutral, “normal” level for the repo rate. What one can say with some certainty is that it is much lower than it was 10–15 years ago. But even taking this into account, a repo rate of 0.5–0.75 per cent does not appear particularly high if an economic downturn were to occur in early 2021. How much is the interest rate usually cut in economic downturns? In Sweden, it is not so easy to have a clear idea of this as we have had a floating exchange rate and an inflation target for just over 25 years, and that is not long enough to have experienced so many economic cycles. It is only when the exchange rate floats that one can use the policy rate to counteract economic downturns – when the exchange rate is fixed the policy rate is in principle locked on defending the chosen exchange rate.
Mario Draghi pointed out the fundamental difference between a monetary policy institution and fiscal rules, which are exemplified by the track records of the ECB and SGP respectively. Third, there is room for an intermediate level of integration, which I would call “full coordination of national policies”, a presently missing link between integration, as we have for monetary policy decision-making, and rule-based surveillance such as is currently the case for national fiscal policies. To illustrate this, a matrix is obtained by comparing the 4 components of economic policy (monetary, financial, fiscal and structural) in columns with the 3 levels of integration in rows: namely the lowest level of “monitored national policies” (with recommendations), the intermediate level of “fully coordinated national policies” (with incentives) and the upper level of “integrated policy” (with common instruments). The four components of economic policy displayed here are quite distinct, but they all contribute to the same objective: to boost growth but also to smooth shocks. Their classification is organised more or less – from left to right – in terms of their effect on stabilisation vs. allocation, in other words of their cyclical vs. structural effects. I do not need to elaborate on monetary policy. As a complement to monetary union, economic union can be seen as the combination of three main policy instruments: (i) financial, (ii) fiscal and (iii) structural. All three policy dimensions indeed have a supply-side impact on resource allocation (to a growing extent going right).