Monetary and Fiscal Policy in the EMU : Conflict or Coordination?

The common central bank of a monetary union tends to lead a more accommodative monetary policy in order to avoid the default of the moderately indebted member countries whereas the most hardly indebted countries have to default. The optimal inflation rate increases the more numerous are the highly indebted countries in the union, the higher are the interest rates on the risk free capital and the smaller are the interest rates on nominal bonds in the fiscally weak countries. This study considers conflict and coordination between integrated public.