6 To achieve a balanced budget, it is necessary to limit the room for manoeuvre in the political domain. To this end, politicians use fiscal rules as a form of self-imposed restraint (cf. chart 5). As a result, automatic stabilisers now play an increasingly important role compared to discretionary measures. The automatic stabilisers are designed to fulfil the three T-criteria. Unemployment insurance is an important automatic stabiliser. It triggers automatic government expenditure or receipts, depending on the economic situation, and thus has an immediate, or timely effect. Second, it provides targeted support to those affected by the economic downswing. Third, it is temporary. But rules alone are no guarantee of stability, for there is often considerable room for interpretation when implementing them. There is always a way to circumvent them. Fiscal rules existed in a number of countries even before the onset of the sovereign debt crisis. A good example is the Maastricht criteria in the EU, which various countries repeatedly failed to meet, without effective sanctions being brought to bear. The history of monetary policy is also rich with examples, from all over the world, which show how a departure from the objective of price stability can have drastic consequences for the economy. If the central bank is unable to ensure price stability, it calls its credibility into question, and thereby runs the risk of reducing the effectiveness of future measures. What factors help to ensure that rules are complied with? First, we need good rules.

In this case, small changes in the reference rate cause relatively large adjustments to long-term rates – the monetary policy transmission mechanism is working. The inflation risk premium and capital market rates are low. Lower interest rates mean lower funding costs for the government. However, if the government seeks capital market funding, another factor comes into play in addition to inflation expectations and the inflation risk premium: the credit risk premium. The more sustainable the public finances, the greater investor confidence will be. This leads to a lower credit risk premium. This makes public finances more affordable, which in turn reduces credit risk. Monetary policy also benefits, because the transmission of monetary policy stimuli is not impeded. In this way, sustainable monetary and fiscal policy together achieve greater stability, less uncertainty and lower rates. Let’s now turn to the real economy (cf. chart 3). On the one hand, lower interest rates mean lower funding costs for companies and private households. This provides favourable conditions for economic growth but does not create it per se. Growth itself is founded on productivity gains, population growth and capital formation. A stability-oriented monetary policy allows households and companies to make their economic decisions (work, consumption, saving and investment) in a less uncertain environment. In this way, the  1  Swiss Federal Constitution, Art. 126 (budget): “The Confederation shall keep its expenditure and receipts in balance in the long term”; art. 100 (economic policy): “In their budgetary policy, the Confederation, Cantons and Municipalities shall take into account the economic development”.