Fiscal policy faces major challenges.

In recent years, the already high levels of debt in many countries have increased.

The situation has worsened overall with inflation, even if the real value of the debt is also reduced as the currency depreciates.

At the same time, the interest costs for the states increase with higher interest rates;

there is also the question of cooperation between monetary policy and financial policy at a time when central banks are being confronted with very high inflation rates for the first time in decades.

Gerald Braunberger

Editor.

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Gita Gopinath, the former chief economist and current deputy director general of the International Monetary Fund, sees fiscal policy confronted with three main tasks that are not necessarily easy to reconcile.

Firstly, states should not pursue an expansive financial policy that would make it more difficult for monetary policy to fight inflation, said Gopinath at the World Economic Forum in Davos.

At the same time, however, governments must also be able to provide financial support to sections of the population affected by economic shocks such as sharp increases in food and energy prices.

Third, governments needed medium-term strategies to reduce high debt ratios, meaning the ratio of national debt to gross domestic product.

Conflicts between monetary and financial policy

In Davos, the economist Raghuram Rajan expressed serious doubts about the ability of fiscal policy to fulfill these tasks.

He sees the danger of conflicts between monetary and financial policy if the central banks have to fight inflation for a longer period of time.

Rajan is a professor in Chicago, but as a former chief economist at the Monetary Fund and governor of India's central bank, he also knows the business of politics.

Rajan sees strong incentives for governments to spend too much money permanently, even after crises, beyond the state's need to pursue an active financial policy in crises.

The fractures in democratic societies prompted governments of all persuasions to contain conflicts by handing out money.

"The love affair between monetary and financial policy is over," conceded Paolo Gentiloni, EU Commissioner for Economic and Monetary Affairs.

Since, alongside emerging and developing countries, Europe in particular is affected by the sharp rise in energy prices, financial policy in the European Union had to intervene to help.

However, the aid is too extensive and should not continue forever.

A timely adjustment is necessary, but it is easy for the European Commission to recommend such adjustments to the member states: "They have to be implemented by national governments and that is not always easy."

According to Gentiloni, Europe also needs significantly more government investment.

They are necessary, among other things, to manage the green transformation.

It also reduces Rajan's vulnerability to sharp increases in fossil fuel prices.

Rajan, on the other hand, sees the danger that governments will spend money to support sectors of the economy whose strategic importance could be questioned with reference to the support of strategically important industries.