Differently from past episodes, the European institutions responded to the pandemic shock with an appropriate policy mix. However, the expansionary convergence between monetary and fiscal policies is strengthening the role and the possible distortionary effects of financial dominance. Due to the consequent growing imbalances in financial markets, European institutions could deem it necessary to abandon the current policy approach and to re-attribute the function of the "only game in town" to monetary policy. However, in the post- pandemic context, the ECB could hardly act again as a last-resort player. Hence, it is convenient to pursue the policies that are compatible with sustainable post-pandemic development.
This paper was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 27 September 2021.
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|WP16.21 - Financial Dominance in the Pandemic and Post-Pandemic European Economy.pdf||901.96 KB|