Euro zone: The conflict between fiscal and monetary policies

Euro-zone governments have implemented policies to support household purchasing power, based on public transfer payments and fiscal deficits. It is important to understand that this policy conflicts with monetary policy: if euro-zone governments boost household purchasing power and domestic demand, it is more difficult for the ECB to curb demand by raising interest rates to drive down inflation. If governments had the absolute determination to avoid a decline in household demand, the ECB would never be able to drive down inflation.