fulfil the budget constraint, is labelled as fiscal dominance. recent years have blurred the previously neat demarcation lines between the two policy realms. firstly, as discussed earlier, the covid - 19 pandemic created a situation in which both sets of instruments were strategic complements : it was in the best interest of monetary policy to create space for fiscal policy, and in the best interest of fiscal policy to use that space to respond to the crisis. however, this made us forget that the normal situation is one of strategic substitutability, in which monetary policy offsets the effects of fiscal policy on aggregate demand. i am afraid that to this day, too many governments are continuing to sleepwalk into a world in which central banks are expected to continue to help at any cost, given the magnitude and multiplicity of the challenges we all face. my view is different : two years of strategic complementarity and crisis management might have left governments with a sense that it was ok not to make difficult choices anymore. well, it ’ s not ok. secondly, jitters in sovereign debt markets have prompted some central banks to intervene to avoid costly panics and preserve the stability of the financial system. a prominent example is the intervention by the bank of england to avert a bout of panic related to overambitious fiscal announcements. in the euro area, the fragmentation of the fiscal landscape — one central bank and many national treasuries — led to the creation of explicit, conditional stabilization tools — omt and tpi — aimed at avoiding unwarranted market panic. of course, these instruments only make sense in order to prevent intrinsically solvent governments being subject to devastating liquidity crises. other mechanisms outside the escb — namely esm loans — exist to handle fundamental fiscal sustainability issues. thirdly, a persistent combination of unsound public finances and accommodative monetary policy could have contributed to the undermining of commitments to fiscal responsibility. jens ’ cautionary words from 2020 resonate loudly today : “ cheap money may be increasingly seen as the normal state. under those conditions, even high debt burdens may appear sustainable to governments. but what if conditions change? ”. 30 these considerations leave me with an uneasy feeling that fragile public sector balance sheets and mounting fiscal challenges ( population ageing, defence, climate action ) might become a persistent concern for central bankers. in a world in which governments have emerged from a series of crises as highly effective fin

to external shocks as those which have reduced its growth in the latest years and to increase its long term growth potential. europe has to cope with a structural problem of low economic growth. the growth performance of the euro area is weak from an international point of view, in particular vis - a - vis the united states : over the past 10 years the american economy has shown an average gdp growth of 3. 3 p. c., while the euro area could only reach an economic growth of 2 p. c. the euro area only succeeded in achieving a higher growth rate in 2001 when the united states were hit by a severe but short slowdown. the following years the american economy however showed a much stronger recovery than the euro area and now again acts as the main growth engine for the world economy. yet it is important to note that data for the eurozone are averages for twelve countries and that a country like finland in the euro area ( and more generally the nordic countries ) has booked in the most recent decade performances in the field of growth and employment rates which are comparable to those of the us and are much better than those of countries like germany and italy. given an unequal population growth - it is higher in the us - a further analysis shows that the gap in real gdp growth between the us and the euro area that opened up in the mid - 1990s is half the size if measured in per capita terms. the remainder is due to differences in productivity growth ( the increase in overall labour productivity in the us, measured by real gdp per person employed, reached on average 1. 9 p. c. in the last 10 years, almost twice as much as the 1 p. c. recorded in the euro area ) and to a much lower level of labour utilisation in the euro area. in the euro area unemployment rates are currently around 3 percentage points higher, labour force participation rates more than 10 percentage points lower and annual hours worked per employed person lower by more than 300 hours. europe is of course not the us. it has its own specificities which should be taken into account. so at least part of the gap in average hours worked between the us and the euro area should be attributed to structural preferences rather than to structural rigidites. however, when discussing this issue it has to be borne in mind that households also take into account the institutional environment, including tax, social security and pension systems when deciding on their labour supply. moreover, the problem to what extent the present european system is sustainable