that said, policy can put us on a better growth path. according to simple, illustrative estimates, extra fiscal spending on productive investment of 1. 6 % of gdp [ 20 ] would reconnect the economy with its pre - crisis growth trend by 2022. and thanks to the recent improvement in the outlook, this figure is lower than was estimated in april ( chart 8 ). chart 8 euro area real gdp projections ( index : 2019 = 100 ) source : ecb. monetary - fiscal interactions in the pandemic and beyond achieving a sufficiently supportive fiscal stance is in the hands of governments. but the ecb can ensure that, for as long as inflation is below our aim, the financing conditions remain in place for the transmission of monetary policy to work via public and private spending. to do so successfully, we need to clearly understand what stage of the pandemic we are in. the economic outlook is improving, but we are not yet out of the pandemic phase. the shock caused by the pandemic was of an exceptional magnitude and has not yet been fully reabsorbed. monetary policy is still playing a critical role in anchoring the yield curve ( chart 9 ). experience shows that attempting to reduce the pace of asset purchases too early would lead to a tightening of financing conditions and a higher pace of purchases later. chart 9 estimated impact of the app and pepp on sovereign term premia ( basis points ) source : ecb calculations. notes : app stands for asset purchase programme and pepp stands for pandemic emergency purchase programme. impacts are derived on the basis of an arbitrage - free econometric term structure model with a quantity factor ( see eser, f. et al. ( 2019 ), “ tracing the impact of the ecb ’ s asset purchase programme on the yield curve ”, working paper series, no 2293, ecb, july ). the model results are for gdp - weighted averages of the zero - coupon yields of the big four sovereign issuers ( germany, france, italy and spain ). while impact elasticities may have been larger during the peak times of the pandemic, the same model ( estimated based on the app experience ) is used to quantify app and pepp impacts. results are subject to estimation and model uncertainty. once we move firmly into the recovery phase, we can start to reorient our policy away from offsetting the pandemic shock. but our focus

private sector to spend more. it can only succeed if the public sector also responds to its policy impulses. [ 12 ] fiscal policy needs to add to aggregate demand such that expectations of future demand and inflation shift decisively upwards. it is the combination of monetary and fiscal policy that makes this policy mix successful. the promise – via forward guidance – that policy rates will not increase until inflation rises sustainably produces higher fiscal multipliers. and the use of unconventional policy tools to lower sovereign yields reduces government borrowing costs relative to growth rates, in turn creating additional fiscal space. these interactions have nothing to do with a loss of central bank independence or an abdication of monetary dominance. achieving price stability requires acknowledging that monetary and fiscal policies cannot ignore each other. [ 13 ] what ensures monetary dominance is that such interactions remain consistent with the central bank ’ s goals, not those of the fiscal authority. [ 14 ] in a liquidity trap situation, this is self - evidently the case. analyses by ecb staff confirm this. they find that, while the ecb was lifting inflation with its asset purchases after 2015, fiscal policy was not supportive in this regard ( chart 4, left and middle panels ). if fiscal policy had instead acted countercyclically, making an effort to eliminate the output gap – or better still, acted patiently, maintaining support beyond the closure of the output gap – inflation could have been closer to our 2 % target ( chart 4, right panel ). chart 4 contribution of monetary policy and fiscal policy to inflation between 2015 and 2019 ( percentage points ) sources : left panel – eurosystem and rostagno, m. et al. ( 2019 ), “ a tale of two decades : the ecb ’ s monetary policy at 20 ”, working paper series, no 2346, ecb, december ; middle and right panels – ecb staff calculations. notes : the boxplot for the left panel refers to a range of assessments comprising the eurosystem staff assessment based on a suite of models and the assessment documented in rostagno, m. et al. ( 2019 ), op. cit. in this panel, “ inflation ” refers to hicp inflation. in the middle panel, the results shown are the average from the broad economic exercise elasticities and a var model estimate. inflation is the private consumption deflator. in the right panel, the results show the counterfactual simulation results from the ecb - base model. monetary policy