great depression, keynes wrote : “ it seems unlikely that the influence of [ monetary ] policy on the rate of interest will be sufficient by itself. i conceive, therefore, that a somewhat comprehensive socialization of investment will prove the only means of securing an approximation to full employment. ” these words are very relevant at the current juncture as well. the ecb has emphasized that fiscal policies should support the economic recovery while remaining in full compliance with the eu ’ s fiscal rules. otherwise, credibility in the fiscal framework cannot be maintained. a critical question, therefore, is whether the prevailing rules could be barriers to achieving the desired coordination of monetary and fiscal policies. there are two key prerequisites for obtaining effective fiscal support to monetary policy within the stability and growth pact rules. governments must have adequate fiscal space and fiscal policy must ensure the sustainability of public finances. in both respects, there appears to be little room for a meaningful fiscal expansion within the existing rules. there is broad agreement that the fiscal framework has failed to ensure long - term sustainability while avoiding procyclical fiscal behavior. countries did not build up sufficient fiscal space during the pre - crisis expansionary period and fiscal space narrowed following the onset of the financial crisis. public bis central bankers ’ speeches debt increased sharply during the crisis years and the policy focus turned to an austerity mode when market pressures heightened. most of the eurozone countries still face long - term fiscal sustainability issues and are expected to keep their fiscal consolidation effort, in terms of the cyclically - adjusted deficit, ongoing. in 2016, only four countries – namely, germany, luxembourg, cyprus, and estonia – have fiscal space for additional discretionary measures according to the stability and growth pact rules. what then is the way forward? it has been emphasized on many occasions that for countries without fiscal space, fiscal policy can still support demand by altering the composition of the budget. in particular, they point out that consideration should be given to cutting distortionary taxes and unproductive expenditure and increasing investments that improve total factor productivity over the medium term. investment and structural reforms that increase the growth potential of the economy create fiscal space by raising future government revenues. it should be noted that some of these measures will require political resolve and social support as they are likely to affect social entitlements. some analysts have remarked that these measures will not have much impact in the short term. should there be a re - thinking of the monetary policy framework? in a recent blog in

important that monetary policy efforts to reduce inflation are complemented by fiscal policy and structural policies, including wage setting. together, these policies determine the overall business environment and hence the market conditions in which firms and consumers operate. complementarity of economic policies will be key to bringing down inflation in the cesee region and preventing a loss of competitiveness and a slowdown in economic convergence. 2 / 2 bis - central bankers'speeches