Accordingly, on the ECB Governing Council we have reiterated that we will closely monitor the exchange rate. 8  In short, the fragility of the recovery in the euro area, a medium-term inflation forecast far below our objective and a nominal effective exchange rate that has in recent months countered much of our stimulus all lead to the conclusion that there is no room for complacency. We should retain a significant monetary stimulus until we have a sound recovery in place. Moreover, we stand ready to recalibrate the foregoing measures, or to introduce new ones were it necessary, to fulfil our price stability mandate, understandably always in a symmetrical manner. It is also crucial to retain flexibility in the application of our asset purchase programmes to head off potential financial fragmentation problems. The other national and European economic authorities must appreciate that, given the uncertainty over the future course of the pandemic and, therefore, over the soundness of the economic recovery, it is essential they maintain their stimulus measures, now in a more selective and targeted fashion. An early withdrawal of these measures would harm the euro area productive system and, potentially, our financial system. The extent of such harm would exceed the potential medium-term costs of retaining the measures over time. And depending on how the pandemic and its economic impact evolve, it cannot be ruled out that such measures may need to be expanded.
This is particularly true for European policy, in the context, for example, of the recently approved European recovery fund (Next Generation EU).14 The spending and investment arising from the use of this fund for projects capable of transforming our economies and for financing reforms to raise their sustainable growth capacity, will be fundamental to consolidate the economic recovery and reduce the potentially permanent consequences of the crisis. More in the medium term, it is crucial that this fund be converted into a permanent, common fiscal stabilisation instrument for the euro area. This would allow a joint fiscal response to macroeconomic shocks and provide a larger 12  See Box 2 of the “Quarterly report on the Spanish economy", Economic Bulletin, 3/2020, Banco de España, for a description of this announcement, and an assessment of its effects on the financial markets. 13 In this respect, see P. Hernández de Cos (2019); “the European economic policy response to a scenario of lower growth and inflation", the Governor’s closing address for the La Granda courses. 14 For an analysis of the impact on the financial markets of the various milestones linked to the EU recovery fund, see Box 5 of the "Quarterly report on the Spanish economy", Economic Bulletin, 3/2020, Banco de España. See also Arce et al. (2020) and Box 3.4 of the 2019 Annual Report of the Banco de España for a discussion of the role of fiscal policy coordinated at European and international level in the current context.