The search for a congruent euro area policy mix: Vertical coordination matters

The way European policymakers solve the policy mix trilemma of asymmetric fiscal rules, no central fiscal capacity and constrained monetary policy in the post-pandemic economy will define the resilience of the euro area in the face of future shocks and the transition to a more sustainable growth model. In a new CEPR Policy Insight, the authors argue that moving to a structured vertical coordination between national and EU budgets would help ensure an adequate fiscal stance and avoid the overburdening of the single monetary policy.