Title page 1

Contents 1

Summary 1

Introduction 2

Fiscal dominance and the stabilisation policy framework in the euro area 3

The empirical picture: compliance and debt ratios 5

The ECB's new toolbox 12

Rising fiscal pressure in the near future 15

How to avoid fiscal dominance 19

Bibliography 24

Figure 1. Compliance with SGP rules 5

Figure 2. Public debt-to-GDP ratio, 1995-2024 6

Figure 3. 10-year government bond yields among the original 12 euro area members 8

Figure 4. The correlation between GDP growth and the change in the Maastricht debt ratio, 1999-2024 9

Figure 5. The level of regulation in 2001 and the change in the Maastricht debt ratio, 1999-2024 11

Figure 6. Labour productivity in the euro area and the US, 1995-2024, in US dollars per hour, based on 2020 fixed prices and adjusted for purchasing power 21