Governing with the debt

The sharp increase in public debts after the great financial crisis as well as the Covid-19 crisis, and potentially with the war in Ukraine, has been accompanied by an easing of concerns about the sustainability of state debts. Low interest rates, itself due to a combination of long-term structural factors and central bank action, explain this apparent paradox. How then can budgetary choices be steered in this totally new environment? Is it possible to have the same budgetary rule for all countries in the euro area? Can fiscal policy absorb all shocks “whatever it takes”? What degree of prudence should be applied when the demand for public spending and investment (in particular for environmental transition) is rising sharply? Should we fear that fiscal dominance will replace monetary dominance, calling into question the independence of the central bank in a context of inflationary pressures?