Fiscal and monetary policy in the euro area stand at a crossroads. The rules- based framework established in the 1990s—the Maastricht Treaty and the Sta- bility and Growth Pact—has failed to prevent the steady accumulation of public debt, which now stands closer to 90% of GDP than to the Treaty’s 60% ceiling. Successive crises have pushed member states beyond the fiscal limits, while the European Central Bank has been drawn beyond its original mandate. Large- scale asset purchases and prolonged periods of ultra-low interest rates have compressed sovereign bond yields and eased government financing conditions, weakening the market discipline that once constrained highly indebted states.

These developments expose a fundamental tension at the heart of the euro’s architecture. When fiscal policy lacks credibility, monetary policy is inevitably forced into a role that extends beyond the pursuit of price stability. The euro area therefore faces the risk of fiscal dominance: a regime in which the central bank effectively loses operational independence because it must preserve governments’ ability to finance deficits. The costs are well known—an inflation tax that is regressive in its incidence and corrosive in its effects on price signals, savings and the efficient allocation of capital.

The fundamental problem does not lie in the design of the fiscal rules them- selves. Successive reforms have left long-term debt dynamics largely unchanged. The deeper cause is persistently weak economic growth. Without stronger growth, fiscal consolidation requires adjustments of a scale that no democratic polity can sustain. The path forward lies not in yet another revision of the rules, but in structural reforms at both the national and European levels—reforms capable of unlocking the full potential of the single market. A credible growth agenda is the surest safeguard of the European Central Bank’s independence and its price-stability mandate.