ABSTRACT
During the worst phase of the last crisis, in 2012, the monetary-transmission mechanism was broken. During the present pandemic, worries about the danger of sudden stops and the importance of preserving the monetary-transmission mechanism were initially overshadowed by concerns about the scale of the ECB's public-sector purchase programme and its implications for fiscal policy in different European countries. Lagarde fell back on the idea that there is a clear distinction between monetary policy and fiscal policy, and that closing the spreads was the responsibility of other institutions. Moreover, he did so not because he was trying on principle to intervene in fiscal policy but because the divergence threatened to break the interbank lending mechanisms that made it possible for the ECB to transmit its monetary policy across the euroarea economy. The court went on to argue that the ECB's actions may cross the boundary between monetary policy and fiscal policy.
