##p. at the same time, there can be no mechanical reaction of monetary policy to fiscal policies or to changes in the fiscal framework. unsound fiscal policy, which results in excessive and persistent budgetary deficits, is one source of risks to price stability that has to be assessed in the formulation of monetary policy. from the perspective of monetary policy, what matters most are the effects that the changes to the stability and growth pact might ultimately have on the behaviour of the fiscal authorities and on the expectations of markets and the public in this regard. these effects cannot be prejudged a priori, independently of experience. what role should the ecb play in this context? the ecb has always maintained that the interaction between the single monetary policy and national fiscal policies in emu needs to be based on a clear allocation of responsibilities, with each party ( institution or authority ) being responsible for achieving its objectives and delivering on its own mandate. the role of the ecb is determined, first and foremost, by its mandated primary objective to maintain price stability in the euro area. the public and financial markets must rest assured that the ecb will successfully carry out its mandate. correspondingly, the ecb expects and calls on the member states, the commission and the ecofin council to deliver sound fiscal policies in line with their respective responsibilities. this requires that they implement the reformed rules of the pact rigorously and consistently. beyond this, the ecb naturally shares its analysis and assessment of the economic situation, including its assessment of fiscal policies, with the fiscal authorities in bodies such as the eurogroup and the economic and financial committee. in so doing, the ecb has a duty to be frank in presenting its views. the ecb has an additional role to play in the context of its communication policy. it has to explain and support the need for rules - based fiscal policies in emu since this is essential for ensuring long - term price stability and sustainable growth. this is why, in recent months, the ecb has consistently argued that the sgp provides an appropriate framework for fiscal policies in emu, even if its implementation could and should be improved in certain respects. and this is why the ecb has considered it necessary to express its concern about some aspects of the recent reform and to stress the need for a rigorous implementation of the new framework. at the same time, the ecb fully respects the prerogatives and responsibilities of member states, the commission and the ecofin council in

##lstered globally by substantial support from both fiscal and monetary policy. the imf estimates that, relative to its projections in january 2020, fiscal deficits this year will be more than five times higher in advanced economies and more than twice as high in emerging market economies. in the euro area, countries have taken unprecedented steps to stabilise and support their economies, with national fiscal measures taken thus far amounting to around 4. 5 % of euro area gdp. those national efforts have been reinforced by policy moves at the european level. 2 / 4 bis central bankers'speeches the €750 billion next generation eu recovery fund has the potential to make a significant difference to europe ’ s economic trajectory over the next few years. the size of the financial support envisaged is macro - economically meaningful, totalling almost 5 % of gdp for the euro area. but it is important to ensure that agreement is reached on the outstanding details of the package so that the funds can start flowing on schedule in january 2021, and it is crucial that those funds are used productively to modernise our economy, helping reduce uncertainty about structural change. monetary policy has also reacted strongly to the pandemic. at the ecb, our first step was mainly focused on stabilising financial markets and addressing fragmentation. the measures we have introduced – notably our pandemic emergency purchase programme ( pepp ) – have largely succeeded in offsetting the harmful tightening in financial conditions we saw earlier in the year. this is visible, for example, in the dispersion of long - term government bond yields, which is now close to its lowest level since the outbreak of the global financial crisis. low benchmark yields have in turn helped support credit growth for firms and households : the annual growth rate of loans to firms reached 7 % in july, up from 3 % in february. but we are now moving more into the second step, which is about returning the inflation path to its pre - pandemic trajectory and ensuring that it continues to re - converge with our aim in a sustained manner. to achieve this, the pepp is fundamental, since – alongside its market stabilisation function – it is also a powerful tool for easing the overall monetary policy stance in the euro area. this was an important rationale for the expansion and extension of the pepp in june. going forward, it is clear that an appropriate macroeconomic policy mix is crucial for the recovery : faced with significant downside risks and unprecedented uncertainty, monetary,