Ignazio Visco: The interaction between monetary and fiscal policies in the pandemic crisis and beyond

Remarks by Mr Ignazio Visco, Governor of the Bank of Italy, at "The ECB and Its Watchers XXII" conference, hybrid event, 17 March 2022.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Coordination between fiscal and monetary policy has been a key factor at a global level over the last two years, to contrast the consequences of the pandemic crisis and to support the recovery as the state of emergency began to subside. In these brief remarks, I will first focus on the similarities and, more specifically, the differences between the policy mixes implemented in the United States and in the euro area, and then on how I see the situation evolving in light of the Russian invasion of Ukraine.

In essentially all countries, following the outbreak of the pandemic, governments stepped in to strengthen health systems and support household income and credit to firms; fiscal policies everywhere were strongly facilitated by the accommodative stance of monetary policy. In the US, however, fiscal measures were especially bold: the public debt-to-GDP ratio rose by 25 p.p. in 2020–21, to over 130 per cent. In the euro area, instead, the debt ratio increased by 15 p.p., to slightly less than 100 per cent, despite a much deeper decline of nominal GDP in 2020 (by 4.8 per cent, against 2.2 in the US) and a slower recovery last year (7.5 versus 10.1 per cent in the US); it was, until the outbreak of the Russia-Ukraine war, on a steady downward trend. At the same time, concerns over the impact of structural changes to growth potential led to the launch of the recovery and resilience programmes associated with the Next Generation EU initiative.