Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at a conference organised by Stiftung Geld und Währung on 25 years of the euro – Perspectives for monetary and fiscal policy in an unstable world, at a panel on “Inflation and public budget. Is monetary policy dominated by fiscal policy?”

Frankfurt, 7 June 2024

In the past four years, the euro area has faced several severe shocks that caused a fundamental shift in the macroeconomic environment.

The long period of very low inflation and low interest rates ended abruptly with the pandemic and Russia’s invasion of Ukraine. In response to the sharp increase in inflation, the ECB hiked interest rates at an unprecedented scale, which markedly increased funding costs for governments, households and firms.

Governments reacted to the pandemic and the war with wide-ranging support measures that were aimed at cushioning their negative impact on income, employment and growth. This led to a significant increase in…