Speech Klaas Knot - "The case for fiscal stabilization in a
low interest rate environment"
In his Witteveen lecture at the Erasmus School of Economics today Klaas Knot
argued for a greater role of fiscal policy to stabilize the economy in the current
low interest rate environment. He pointed out that the current fiscal
framework in the EMU, despite its merits, is not well equipped to deliver that.
"In order to make our monetary union more stable, we need a fiscal framework
that enhances coordination between member states and allows for a better
alignment of monetary and fiscal policy over the entire economic cycle.", he
said.
Thank you.
It is a great honor to give this lecture. A lecture that bears the name of a man who
has greatly influenced economic policymaking. Both in theory and in practice, both at
home and abroad.
I saw Johan Witteveen a few times in the late 1990s, when I worked at the IMF. As a
former managing director he still had his office at the Fund, and he regularly visited to
discuss economics and share his views with IMF staff. Although I never intensely
spoke to him one-on-one, it was clear to me that after all those years he was still a
very respected economist, and that he was held in the highest esteem by those
around him. In fact, watching him from a distance, it was easy to imagine John
Maynard Keynes himself walking there, in the corridors of the institution of which he
was the spiritual father.
The association with Keynes is not so strange because, of course, Witteveen was a
Keynesian economist. He held the view that fluctuations in aggregate demand can
create business cycle fluctuations. And because markets do not always adjust
smoothly, he believed that both monetary and fiscal policy have a role to play in
dampening these fluctuations. And that their effectiveness in stabilizing the economy
depends on how they interact with one another.
Witteveen's views on the importance of monetary and fiscal stabilization policies are
highly relevant today. In his spirit, today I will present a case for a more active role of
fiscal policy in stabilizing the economy, in a world with persistently low interest rates.
I will start by briefly reviewing some of the conventional channels along which
monetary and fiscal policy interact in normal times, when interest rates are much
higher than they are now. We will then see how this interaction is modified when
interest rates are persistently low, and what this implies for the role of fiscal policy.
Next, we will move away from the theory and have a look at how fiscal and monetary
policy in the euro area interacted in practice. Here we will look in particular at the
European debt crisis ten years ago, and compare that episode to the more recent
Covid crisis. I will end with some remarks about possible implications for the fiscal
framework in the euro area.
The channels of monetary-fiscal policy interaction in normal
times
Let us start by briefly reviewing how monetary and fiscal policy interact in normal
times.
Firstly, monetary policy affects fiscal policy by influencing the cost of funding for the
government, and the sustainability of its debt. If the central bank lowers the policy
interest rate or purchases more government bonds, it becomes cheaper for the
government to finance its deficit. Moreover, monetary policy affects growth and
inflation, and therefore also the differential between real interest rates and economic
growth. This interest-rate-growth differential, or simply 'r minus g', largely determines
the sustainability of public finances. The higher the differential between the interest
rate and growth, the greater the build-up of government debt as a percentage of the
economy over time. And so the more difficult it is to ensure that the debt remains on
a sustainable path in the long run. Conversely, higher economic growth and/or a lower
real interest rate reduce 'r minus g' and thereby make it easier for governments to
remain solvent.
The conduct of monetary policy not only influences the cost, but also the effectiveness
of fiscal policy. For example, fiscal expansions are likely to have a stronger impact on
economic activity when they are accompanied by a loose monetary stance from the
central bank. This is because, in normal times, when the government raises
expenditure and lets the deficit go up, interest rates will rise. But with higher interest
rates, firms and households will spend less. This 'crowding-out' effect offsets the
positive effect of the fiscal expansion. If the central bank keeps the interest rate low,
this effect is much weaker, and the fiscal expansion will have a more positive effect on
output.
So monetary policy impacts fiscal policy. But vice versa, fiscal policy also influences
the effectiveness of monetary policy. For example, changes in taxes, government
spending and public wages affect the demand for goods and services, which in turn
drives inflation. Such fiscal policy actions may either support or undermine the ability
of the central bank to achieve its price stability objective.
I will illustrate these monetary-fiscal interdependencies using a standard IS-LM model
[Figure 1].
Figure 1. The effect of monetary policy depends on fiscal policy
For those of you who do not have a stack of macroeconomics textbooks lying on your
bedside table, here's a quick reminder. The IS-curve shows all combinations of the
interest rate and level of output for which the market for goods and services is in
equilibrium. The LM-curve represents equilibrium in the monetary sphere of the
economy, that is simply where money supply equals money demand. The interest rate
and output level at the intersection of the IS and LM curves, at point A, satisfy
equilibrium in both markets
Now suppose the central bank expands the money supply and thereby reduces the
interest rate.
This is reflected by a rightward shift of the LM curve, the blue dashed line being the
new LM curve. The ultimate impact on output then depends, to a large extent, on how
fiscal policy reacts to this monetary expansion. If fiscal policy remains constant,
meaning government spending and taxes are left unchanged, then output rises
because the lower interest rate stimulates investment. The economy shifts from A to
B. If fiscal policy is loosened and the government raises the budget deficit, then the
positive effect on output is amplified. In that case, the fiscal expansion shifts the
IScurve to the right, as shown by the yellow dashed line, and the economy settles at
point C. Here output is higher than if fiscal policy remained constant.
Now let's look at the opposite case. If fiscal policy is tightened and the budget deficit
reduced, for example through a tax hike, the positive change in output brought about
by the monetary expansion will be more muted. In that case, the fiscal tightening
leads to a leftward shift of the IS curve and output falls. If the fiscal tightening is
sufficiently strong, the positive effect on output is fully offset.
The economy shifts from A to D.
As an aside, you can see that the amplification then takes place in the lowering of
interest rates, a heavily debated development in the Netherlands, with far reaching
consequences for bank profitability, pension solvency etc. But here I will abstain from
all of these financial stability consequences and just focus on output and inflation.
So monetary policy influences the effectiveness of fiscal policy, and vice versa. The
important thing to remember is that in order to effectively stabilize the economy, we
need a well-aligned monetary-fiscal policy mix. A central bank combatting low
inflation would benefit from loose fiscal policy, while a crisis-fighting fiscal authority
would gain from the support of accommodative monetary policy. Of course, properly
aligning monetary and fiscal policy may be more difficult in a monetary union that
consists of a single central bank and many different national fiscal authorities. We will
talk more about the challenges for monetary-fiscal interactions that are specific to
monetary unions later on.
The role of fiscal policy in times of persistently low interest
rates
Now let's talk about monetary-fiscal interactions in times when interest rates are
persistently low. At this point I am going to introduce a new character to the story:
the natural interest rate. The natural interest rate, or r* as it is often called, is the
interest rate at which the demand for, and supply of, capital are in equilibrium, and
the economy operates at full employment. If the central bank wants to cool off the
economy and bring inflation down, it needs to set its policy interest rate above the
natural rate. On the other hand, to stimulate the economy and to raise inflation, the
policy rate should be set so as to push the interest rate below the natural rate.
And here comes the problem for central banks. Stimulating the economy and raising
inflation may not be feasible if the natural interest rate is very low. In that case, the
policy rate needed to stimulate the economy might lie below the effective lower bound
that exists on the nominal interest rate. Below this lower bound, further interest rate
reductions are either impossible or will simply not induce higher borrowing by
households and firms anymore. They just keep their money in the form of cash rather
than in savings accounts or bonds. The effective lower bound therefore limits the
scope for monetary stimulus.
The interplay between the natural rate of interest and the monetary policy stance, and
the constraining role of the effective lower bound, is illustrated in this figure. [figure
2]
Figure 2. The effective lower bound limits the scope for monetary stimulus

For simplicity, let's assume the inflation rate is zero, so the nominal and real interest
rate are the same. When the central bank sets the interest rate above the natural
rate, monetary policy is said to be contractionary. This is indicated by the blue area. If
the interest rate is set below the natural rate, monetary policy is expansionary. This is
indicated by the yellow area. Because of the effective lower bound , and for a given
level of inflation, there is a limit to the scope for expansionary monetary policy. The
lower the natural rate, the less room there is for the central bank to provide monetary
stimulus. On the other hand, a higher natural rate increases the scope for monetary
policy to be expansionary. If we bring inflation back into the story, then higher
inflation would also increase the yellow area in the figure, as it would push the 'real
effective lower bound' more to the left. Remember, the absolute lower bound is on
nominal rates; higher inflation therefore lowers the lower bound on real interest rates
and in doing so creates more space for monetary stimulus.
The effective lower bound is like the black hole of monetary policy. We cannot directly
observe it. But we know that monetary space disappears if the natural rate
approaches the lower bound. Because that is the point beyond which the central
bank's interest rate cannot reach.
So a low natural rate of interest is a challenge for central banks. And that is exactly
what has happened. [Figure 3]
Figure 3. The natural rate of interest in the euro area has declined
As you can see in this chart, empirical evidence suggests that the natural interest rate
has been on a downward trend in the past few decades, both in Europe and other
parts of the world. Estimates for the euro area put the current natural rate at, or even
below, 0%. Several structural forces underlie this so-called secular decline in r*. Think
of ageing, rising inequality, higher risk aversion, weak productivity growth and lower
investment demand. They all tend to lead to an excess demand for safe assets.
Because most of these trends are likely to continue in the future, the natural rate is
expected to remain low for some time. This means that the effective lower bound will
limit the central bank's room for manoeuvre more often in the future.
So spells of very low interest rates mean trouble for central banks. But they may be
good news for governments. Low interest rates tend to increase the impact of fiscal
policy on the economy. In fact, recent empirical evidence shows that the impact of
government spending on output is larger when the effective lower bound on interest
rates is binding. Intuitively, this makes sense. Raising public expenditure in a low
interest rate environment does lead to more private spending, because the nominal
interest rate remains low and is expected to remain low. In fact, a fiscal expansion
could actually have a crowding-in effect through an increase in inflation, and inflation
expectations, and thereby a reduction in the real interest rate. So people are going to
spend more because they expect prices to increase in the future, rather than to spend
less because government spending raises interest rates.
In theory, this is good news, because it means that, in a low interest rate
environment, expansionary fiscal policy is capable of helping the central bank in
stimulating demand for goods and services, raising inflation, and escaping the
effective lower bound on interest rates. However, the flipside is that contractionary
fiscal policies at the effective lower bound can keep aggregate demand and inflation
low, and real interest rates high. This traps the economy in the low interest rate
environment for longer.
To make matters slightly more complicated, in a low interest rate environment, the
impact of fiscal contractions and expansions is not symmetric. The negative effect of
contractionary fiscal policy is larger than the positive effect of expansionary fiscal
policy. That's because of the non-linear nature of the effective lower bound, which
means that the interest rate can move upwards more easily than it can move
downwards.
In order to understand this, let's look again at the IS-LM model from before.[Figure 4]
Figure 4. Fiscal policy is more potent near the effective lower bound, but
fiscal contraction more so than fiscal expansion.
To characterize the economy in which the interest rate is near its effective lower
bound, in this chart we now draw the LM curve as a convex function. The closer the
interest rate is to its lower bound, the less responsive output becomes to changes in
the interest rate and so the flatter the LM curve is. For the same reason, we draw the
IS curve as a concave function: the lower the interest rate is, the smaller the effects
of interest rate changes are on investment and output, and so the steeper the IS
curve is.
Now consider two cases. In the first case, the government decides to pursue fiscal
expansion.
This leads to an increase in aggregate demand, as reflected by a rightward shift of the
IS curve. The new IS curve is the yellow dotted line called IS prime. This pushes the
economy away from the effective lower bound. The rise in aggregate demand drives
up the interest rate. This rise in interest rates makes it less attractive for firms and
households to spend, just as in our previous example in the standard IS-LM model.
This crowding-out effect limits the overall effect of the fiscal expansion on output. In
the second case, the government instead implements a contractionary fiscal policy.
This leads to a reduction in aggregate demand and so the IS curve shifts leftward. The
yellow dotted IS-curve with the double prime. Because the IS curve now moves along
the flatter portion of the LM curve, the fiscal contraction leads to a relatively small
reduction in the interest rate. This small interest rate reduction does little to offset the
fall in output.
Therefore, the negative effect of the fiscal contraction on output is larger than the
positive effect of the fiscal expansion. In a more sophisticated model of a dynamic
economy, a fiscal contraction at the effective lower bound can be shown to do even
more harm by reducing inflation expectations and raising the real interest rate. This
further depresses private spending and inflation.
Ok, let's pause here for a moment.
I realize that for some of you, this was all a bit intense. Sometimes, the economics
professor in me gets the upper hand. Yet it's useful to grasp some basic theory, in
order to appreciate what happened in the euro area over the past ten years and to
understand the policy challenges that lie ahead of us. As a reassurance, and maybe
disappointment for others, the hardest part is behind us. Now the real fun begins.
But before we continue, what do you need to have taken in so far? We've seen that, in
normal times, the mix of monetary and fiscal policy is important for stabilizing the
economy. We have also seen that once interest rates are persistently low, the scope
for monetary stimulus is reduced, but the effects of expansionary fiscal policy are
greater. Governments can then help the central bank by raising aggregate demand
and inflation, and shortening the period of low interest rates. Conversely, if in such
circumstances the government were to pursue a contractionary fiscal policy, this could
trigger a vicious cycle of weak demand, low inflation and high real interest rates. As
we will likely have more frequent episodes of very low interest rates in the future, this
strengthens the case for a greater role for counter-cyclical fiscal policies. This is more
or less in line with what Witteveen argued already more than 50 years ago.
Now, before you all get too excited about the potential of fiscal policy, I want to make
a few cautionary remarks here. If using the national budget to stabilize the economy
in a low interest rate environment is such a good idea, why aren't governments doing
this all the time? Well, first of all, macroeconomic stabilization is not the only objective
of fiscal policy. There are lots of other legitimate economic and political objectives, like
for example redistributing income. And there are important constraints as well.
I will come to speak about debt sustainability in a moment, when we look at the euro
area. But there are also, what economists famously call, the implementation and
transmission lags. This simply means it takes time, for example, to design and
implement a good subsidy policy for the purchase of electric cars. And then it takes
time before people actually buy more electric cars. These time lags often prevent
fiscal policy from providing the necessary stimulus at the time it is needed, and not
when the recovery is already well underway. And even if fiscal policy were not subject
to any lags, governments would still face the issue of coming up with the right fiscal
package. Are we going to cut labor income taxes or are we going to invest in the
digital highway? Or a little bit of both? It isn't easy. As a Finance Minister, Witteveen
was no doubt very aware of that.
So when I say that persistently low interest rates strengthen the case for more
countercyclical fiscal policy, I'm not saying this should be the new compass for the
ship of state to sail by. Other considerations are as important as ever.
What I would like to argue is that the macroeconomic stabilization function of fiscal
policy has become more important, and should therefore attract more prominence
when weighing the various objectives of fiscal policy.
Fiscal-monetary coordination in the euro area
Now that we have covered the theory, let's see what actually happened in the euro
area. The consensus view before the global financial crisis of 2008 prescribed a clear
division of tasks between monetary and fiscal policy. According to this view, an
independent central bank should be tasked with stabilizing prices, which would
normally have a countercyclical element to it. Fiscal policy should focus on achieving
public debt sustainability. This division of tasks was meant to ensure that fiscal
problems were not resolved by having the central bank 'inflate away' public debt.
Also, discretionary fiscal stabilization policy was generally seen as very difficult to
implement, for the reasons I just mentioned. Fiscal authorities were therefore advised
to take on a more passive role and let the automatic stabilizers do their job.
This pre-crisis consensus view is reflected in the institutional setup of our Economic
and Monetary Union. While the European Central Bank is mandated to maintain price
stability, under complete independence, the member states are required to follow a
set of fiscal rules that limit government indebtedness. This is all laid down in the
Stability and Growth Pact, or SGP. At the core of the SGP are a set of well-known
fiscal rules. The most important ones being that the government deficit should not
exceed 3% of GDP and that government debt should not be higher than 60% of GDP.
Again, the main purpose of these rules, which continues to be relevant today, is to
safeguard the ECB's independence and to help prevent debt sustainability risks from
spilling over from one member state to others.
Despite its merits, there was one thing that the EMU fiscal architecture was not
designed for.
And that was to ensure an appropriate fiscal stance at the union-wide level. A fiscal
stance that takes account of the condition of the euro area economy and is aligned
with the monetary stance of the central bank. After all, decisions on spending and
taxation are the responsibility of national governments. Discretionary fiscal
stabilization policy is possible, but only as long as the conditions of the SGP are
satisfied. The dominant thinking was that a budget balance close to zero or in surplus
in good times would create sufficient fiscal space for automatic stabilizers to stabilize
the economy in bad times. This would be enough for fiscal policy to support monetary
policy in smoothing out national business cycle fluctuations and ensuring stability of
the monetary union.
So we thought.
Then came the global financial crisis of 2008. And a few years later, the European
sovereign debt crisis. These crises taught us the hard way that the pre-crisis
consensus view on the role of fiscal policy was incomplete. It was incomplete because
it did not take into account episodes in which countries would face a very large shock
and in which low interest rates would limit the scope for monetary stimulus.
This design flaw of the fiscal architecture in the EMU became painfully apparent during
the European sovereign debt crisis. Multiple member states were hit hard by the
unwinding of macroeconomic imbalances that had built up in previous years. As fears
started to emerge about their debt sustainability, sovereign bond spreads in the euro
rea started to diverge, triggering a self-fulfilling crisis. The ECB's Outright Monetary
Transactions and former President Draghi's infamous "whatever it takes" speech in
2012 signalled the ECB's willingness, on specific terms and conditions, to act as buyer
of last resort of government debt. This eliminated speculative risk premia and helped
restore the transmission of monetary policy.
Yet in the aftermath of the crisis, binding budgetary restrictions still forced countries
to cut public spending and raise taxes. This not only hurt economic growth, but also
shifted the burden of macroeconomic stabilization onto the shoulders of the ECB. To
make matters worse, this happened in an environment of persistently low interest
rates that, as we have seen, makes traditional monetary instruments much less
effective. As countercyclical monetary policy at the euro area wide level was unable to
offset procyclical fiscal policies at the national level, the recession was prolonged and
the subsequent recovery was off to a slow start. [Figure 5]
Figure 5. Monetary and fiscal policy in the euro area were misaligned
The following chart illustrates the lack of coordination between monetary and fiscal
policy in the euro area during and after the European sovereign debt crisis. The bars
show the change in the primary budget balance as a percentage of potential output
for the euro area as a whole. Positive numbers indicate a discretionary fiscal
tightening, negative numbers indicate fiscal loosening. The red bars indicate the years
when fiscal policy was procyclical and green bars the years in which fiscal policy was
countercyclical. While fiscal policy was initially countercyclical during the global
financial crisis, it turned procyclical during much of the European debt crisis. This
reflected choices in fiscal policy that were often understandable from a national
perspective. But, at a European level, these choices led to an aggregate fiscal stance
that was not supportive to economic recovery. Monetary policy, on the other hand,
was steadily accommodative during those years, as evident from the ECB's expanding
balance sheet. In the chart, this is shown by the solid white line. So during most of
the sovereign debt crisis, monetary and fiscal policy behaved out of sync, rather than
working in tandem to stabilize the economy.
Now let's look in the same chart at what happened more recently, during the Covid
crisis. This time, the policy response was entirely different. Both monetary and fiscal
policy responded to the crisis with unprecedented heft and synchronicity. What
helped, of course, was the much more symmetric nature of this crisis compared to the
previous one. Every country in Europe was hit in a similar fashion, and in every
country it was clear what the desired fiscal response should be. The ECB expanded its
quantitative and credit easing instruments, as reflected by the strong growth of its
balance sheet. This provided space to governments to increase fiscal spending,
without triggering severe stress in sovereign bond markets. In fact, the aggregate
discretionary fiscal stimulus in the euro area in 2020 has been estimated to be more
than 4% of GDP. By comparison, the global financial crisis prompted a discretionary
fiscal stimulus of about 1.5% of GDP.
I think this response to the Covid crisis offers important lessons for the fiscal
architecture in the euro area. The successful coordination of fiscal and monetary
policy was in great part due to the enormity of the economic threat as well as its
symmetric nature. From the outset it was clear that we needed an all-out response
from both governments and central banks to shield households and firms from income
loss and avoid irreversible damage to the economy. Under these circumstances,
policymakers decided to activate the general escape clause in the Stability and Growth
Pact. The activation of this clause temporarily lifted all restrictions on fiscal policy. This
helped prevent undue procyclical fiscal consolidations, such as during the sovereign
debt crisis.
But shouldn't an effective and concerted monetary and fiscal policy response also be
possible under less dramatic circumstances than the Covid crisis? And wouldn't we be
better off with a framework that allows for more effective macroeconomic stabilization
policies without needing to have recourse to an emergency clause that in effect
requires the suspension of all fiscal rules? And if the answer to both these questions is
yes, how do we ensure that we maintain a balanced macroeconomic policy mix in the
EMU, during the current recovery phase and beyond?
Based both on theory and past experience, I think that, in order to make our
monetary union more stable, we need a fiscal framework that enhances coordination
between member states and allows for a better alignment of monetary and fiscal
policy over the entire economic cycle. This requires sufficiently countercyclical fiscal
policy also from a euro area wide perspective. Not only in bad times or when
persistently low interest rates limit the scope for conventional monetary policy. But
also in good times, so that governments reduce debt levels to pay for stabilization
policies in the future. Repair the roof when the sun is shining, an integral element of
countercyclical stabilization policy that often gets overlooked.
An enhanced fiscal framework to ensure stability of the EMU
As a central banker, it is not up to me to map out in detail how the EMU fiscal
framework should be changed. That is a political decision. Nor would I want to give
you the impression that I am advocating a complete overhaul of the framework. At
the risk of repeating myself: fiscal policy serves many other legitimate objectives, and
there are many constraints, especially in a monetary union where fiscal policy is and
will remain primarily a responsibility of national governments. So the Stability and
Growth Pact continues to serve an important purpose. My argument today is about
evolution, not revolution.
What I will do is outline three features that I think would help to make the current
framework more effective in allowing national fiscal policies to stabilize the economy
at the euro area level.
And to encourage greater alignment between central bank and government policies.
First of all, we need a fiscal framework that would improve coordination of national
fiscal policies within the economic and monetary union. The Next Generation EU fund
is a big step in the right direction. It expands fiscal space across the union during a
downturn and thereby allows the euro area fiscal stance to remain well-aligned to
monetary policy. Furthermore, the fund's expenditures are targeted at the most
vulnerable regions and are focused on public investments that will help raise
countries' potential output. The combination of public investment and targeted
structural reforms is needed to increase potential growth and make our economic and
monetary union more resilient. We have seen, in the past, that growth-enhancing
public investments are often first to fall victim to spending cuts.
That in itself is a major cost of the current fiscal framework. We still have a lot of work
to do to make the Next Generation EU fund a success. But if it becomes a tangible
success, it would of course set a precedent, with the promise of more to come.
Secondly, next to improving coordination of national fiscal policies, the SGP should be
sufficiently flexible to allow for sizable and sustained expansionary fiscal policy,
beyond normal automatic stabilization, if economic circumstances so dictate. As we
discussed earlier, this is even more important in the current low interest rate
environment. The activation of the general escape clause allowed for this flexibility
during the early stage of the pandemic. And it may very well be needed in the face of
another extreme event in the future. But a suspension of all fiscal rules should not be
our only tool to achieve a balanced policy mix to deal with economic shocks. That's
because the emergency clause also has drawbacks.
The uncertainty about whether and when the clause is going to be activated makes
the framework less predictable, and could discourage governments from engaging in
countercyclical spending. Moreover, depending on the circumstances, a complete
suspension of the framework could be too much of a good thing, if it hampers fiscal
discipline. Finally, both deactivating and reactivating the clause could prove politically
difficult. Therefore, flexibility should somehow be a more intrinsic feature of the
system, and not one that arises only in emergencies.
So the European fiscal framework should allow for more coordination of national fiscal
policies and more flexibility to deal with large shocks. In order for these two features
to work, we need a third one.
A monetary union with multiple budgetary authorities requires sustainable national
debt levels. Therefore, an enhanced fiscal framework should have robust and credible
rules that make sure national governments keep their debt levels in check. Not only
should member states build up sufficient buffers in good times. They should also
increase potential economic growth that ultimately generates the debt repayment
capacity. Economic life gets so much easier with half a percentage point more
productivity growth! In many EU countries there is scope for structural reforms that
would give a welcome boost to economic growth. Fiscal policy has an important role
to play here by maintaining a sufficient level of public investment.
Conclusion
Ladies and Gentlemen. We are nearing the end of our journey. We've seen that the
mix of monetary and fiscal policy matters for their effectiveness in stabilizing the
economy. Especially when interest rates are persistently low and central banks have
limited scope for manoeuvre. In that case, fiscal policy can play an important role, by
raising aggregate demand and inflation. As the current low interest rate environment
is likely to persist, we need a structurally larger role for fiscal policy in
macroeconomic stabilization for the foreseeable